Saturday, August 15, 2009

Cash Clunker

*This post is a little old. It was composed before a trip I took to my old Kentucky home. This issue has faded somewhat, but the same problems exist.

The recession is on its way out! The “Cash for Clunkers” program has been a rousing success. The government agreed to give away money and people surprisingly lined up with their hands eagerly held out. The government printed up money (“It’s free money from the government!”) and the auto industry is back on its feet and soon it will be better than ever.

If only.

The lunacy of the Cash for Clunkers boondoggle is a testament to the government’s inability to learn from its mistakes.

Like the vaunted stimulus earlier this year, the “Cash for Clunkers” program was sold to the public as the avenue through which the economy will be jump-started. Just throw some money at a problem and like magic, it will go away. People aren’t buying enough cars? The solution must be the government paying people to start the process.

Unsurprisingly, the initial response to the program was successful. Despite saying that they are tired of others getting tax breaks and special treatment, people are generally receptive when they are the ones getting “free money” from the government.

So people are now buying new cars, maybe even American cars. That’s great, and all it took was a little government spending, $1 billion, to get the ball rolling.

And just like the housing bubble that inevitably burst, the “Cash for Clunkers” program is but a band-aid that brings no permanent relief, much less stabilization.

At a time when jobs are still not coming back, “Cash for Clunkers” offers no genuine solutions. Sure, people are buying cars, but does that alone mean the economy is on the way back? Closed dealerships remain closed. Factories aren’t reopening. The only certainty to come out of “Cash for Clunkers” is that it plunges the United States and its citizens further into debt.

Less than a year after the housing market hit rock bottom, people seem to believe that the government can create money out of thin air, pass it out, and then think that reality won’t set in when the money cannot be paid back.

Look at the housing crisis. Credit was massively expanded making more “money” available in the form of loans so that people traditionally deprived of loans could buy the home of their dreams. But the bills came due and people who should not have been approved for loans in the first place lost their homes. The same thing can’t happen to eager car buyers, can it?

The same general principle is at work in “Cash for Clunkers.” People are enticed with money that appeared out of nowhere so they can buy a new fuel-efficient car that they don’t necessarily need.

For a country that is still suffering through a recession and incalculable debt, it is dumbfounding to see that Congress and President Obama believe that creating more debt will somehow alleviate the current problems. It’s as if a doctor treating a stab wound victim decides that shoving the knife deeper into the tissue will make the stab wound go away. It makes no sense.

This program brings only temporary benefits but it cannot go on forever. Eventually the program will stop and lots of people will probably default on their car payments making this whole exercise a waste. But in the meantime, it’s quite likely that the same logic, handing out money, will be extended to some other industry. The U.S. Postal Service is in some financial trouble and thousands of offices might close. Will the government begin handing out tax rebates so we’ll send out more packages from the post office? Will they raise taxes to support the next scam?

Not likely. We already hear that taxes cannot be raised because we’re already in a recession and people can’t be deprived of yet more of their money. But isn’t that what “Cash for Clunkers” inevitably leads to? People losing yet more of their money for cars they might not even need?

The program encourages more spending when people should be saving.

But stopping programs like “Cash for Clunkers” is only stopping a symptom. It is the entire mentality that government can just hand out money to spur spending that needs to change. And the entity that needs to be confronted is the one that makes such schemes possible in the first place. It is not President Obama or even the dim-witted Congress, but the Federal Reserve, that giant printing press.

Printing up money that doesn’t exist is exactly what gets average citizens thrown into jail. But as long as the government has a “private” agency that officially finances its spending, people can be convinced that their taxes won’t have to be raised so the auto industry can stay afloat or that government-run health care is even remotely possible.

But before the Fed can be stopped, it has to first be examined. That is what Ron Paul’s “Audit the Fed” is designed to do. Already with over 250 co-sponsors in the House, the companion bill has a growing number of co-sponsors in the Senate. If we can expect government spending to actually slow down or even stop, we have to stop the mechanism that makes deficit spending possible.

To adapt from the historian Tom Woods, To stop the spending machine, you have to go after the money machine.

Audit the Fed.


Steel Phoenix said...

I'm still of the opinion that the dollar is over-valued. I don't see Cash for Clunkers being a big problem, although its given economic justifications are obviously absurd.

The fuel savings should cause at least some success; environmentally, on lowering the price for gas, and on reducing the money and political favors we give Arab nations. On balance, maybe not worth it, but better than the usual utter failures I'm used to from the government.

My bigger concern is the government's policy of taxing success to fund failure. The price of doing business is beginning to exceed the reward for doing so.

Left Coast Rebel said...

Carl - Great points and although this issue is old, it still is instructive at pointing to the effects of government interference and subsidization of industries. I watched Cspan when the House was debating whether or not to throw another 2 billion at the programs. The statist dems and repubs were claiming that the program was a total success because it had run out of money so fast.....if that doesn't tell you everything!

Carl Wicklander said...

Steel Phoenix,

What I find it hard to believe is that the rationale used for a program like "Cash for Clunkers" won't produce a disastrous conclusion. If handing out money works so well, why not just extend it to every industry?

Carl Wicklander said...


I know what you mean. It's just further proof that Republicans aren't conservative or libertarian, with a couple notable exceptions, of course!

They act as though the popularity of a particular program perfectly correlates with the sanity and responsibility of it. You and I can pull up quotes from the Fed chairman himself and other assorted "experts" who didn't think there was anything amiss in the housing market. Even though people loved what was happening in that industry for a long time, it ended in catastrophe. Cash for Clunkers is certainly not as far-reaching as that, but it follows the same narrative.

Thanks for the visit.

Ornithophobe said...

Cash for clunkers is simply handouts to the upper classes. Poorer folks, the ones likely driving "real" clunkers, don't buy new cars. They can't afford them. I should know; I've never owned a "new car" in my life. I've also bought my last two cars for cash in hand; I can't afford pricey car payments. I resent C4C because it depletes the used car market and the secondhand part market of viable merchandise, running up costs for people like me.