One more postmortem on the Cash for Clunkers program… The American taxpayer paid $24,000 per car. According to Bill Adams, spokesman for the Department of Transportation the program was “wildly successful.” It is scary what government officials deem as “wildly successful.”
The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.
The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
The Cash for Clunkers program is very simple. Well, at least compared to health care. The simple lesson to be learned here is that if the government cannot manage a program like this effectively, how is government run-health care going to work in the long run?
Thanks in part to Cash for Clunkers third quarter GDP growth was 3.5%. Growth was a modest 1.9% without the Cash for Clunkers program. GDP should be lower in the fourth quarter without the government propping it up.
Cash for Clunkers will be remembered for being one of the stupidest government programs ever. The program was sponsored in a bipartisan fashion. The Senate version of the bill was sponsored by Debbie Stabenow (D-Michigan) and Sam Brownback (R-Kansas). Why was the program so terrible? I’ll let Chris Edwards tell the story.
- A few billion dollars worth of wealth was destroyed. About 750,000 cars, many of which could have provided consumer value for many years, were thrown in the trash. Suppose each clunker was worth $3,000 at a guess, that would mean that the government destroyed $2.25 billion of value.
- Low-income families, who tend to buy used cars, were harmed because the clunkers program will push up used car prices.
- Taxpayers were ripped off $3 billion. The government took my money to give to people who will buy new cars that are much nicer than mine!
- The federal bureaucracy has added 1,100 people to handle all the clunker administration. Again, taxpayers are the losers.
- The environment was not helped. See here and here.
- The auto industry received a short-term “sugar high” at the expense of lower future sales when the program is over. The program apparently boosted sales by about 750,000 cars this year, but that probably means that sales over the next few years will be about 750,000 lower. The program probably further damaged the longer-term prospects of auto dealers and automakers by diverting their attention from market fundamentals in the scramble for federal cash.
The biggest lesson that should be learned here is that this program is far less complex than health care and look at the mess. To believe that the government can do a better job with health care requires a complete separation with reality.
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