Sunday, 23 August 2009

Cash for clunkers: dumbest program ever?

Chris Edwards at Cato@Liberty argues it is. He writes,
Farm subsidies are unjust. Trade restrictions are counter-productive. Energy regulations have done great damage. Housing policies helped cause the financial crisis. But for pure dumbness, Cash for Clunkers takes the cake.
That's a big call given how many very dumb government programs there are out there, but Edwards asks us to think about what the program will have accomplished. Edwards writes,
  • 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.
Now that's dumb, but the dumbest? I mean farm subsidies really do take some beating.


Anonymous said...

Farm subsidies have to be well up the list of dumb programs. US and EU the big culprits. Interesting though that the current US dairy support prices at around $11/hundredweight are well below the 'cost of production' at $16, and US dairy farmers are hurting badly. In NZ we can only hope that supply falls off there this northern autumn and demand picks up as the recession eases. NZ farm subsidies are now tiny and less obvious. However, the high country lease rentals would qualify, as outlined by Basil Sharp in the PCE report on the high country April 09.

Cars4Charities said...

Another industry harmed by cash for clunkers is car donation charities. Of course we told the politicians this would happen. Obviously, they didn't care.

Anonymous said...

Since when does something have to be consumed until it has no value. The private sector constantly destroys valuable capital. We would never call them inefficient.