Clunkers, A Case Study in Why Obamanomics Is Failing

As if we didn't need another reason to reject government run health care, the government run 'Cash for Clunkers' program has been suspended (or in trouble). Add this program to the list: Medicaid, Medicare, Social Security, Amtrak, the Post Office, and our school system to name a few.

We can also add to the list "jobs, jobs, jobs, jobs" to quote Speaker of the House, Nancy Pelosi -- temporary as they may be, and non-existent as they may be. Heritage lays it all out for us:


Cash for Clunkers, A Case Study in Why Obamanomics Is Failing
The Heritage Foundation

If you watch television you’ve seen the ads: “So bring in that old jalopy and get up to $4500 towards the purchase of a new or select used vehicle. That’s right get up to $4500 for that old piece of junk, plus you keep the rebates. You have to hurry! Since funds are limited for this program it’s first come first served!” Well we’re about to find out just how limited those funds were. The Obama administration’s cash-for-clunkers program has been such a “success” that in just the first week of full implementation, the $1 billion originally allocated for the program is about to be exhausted already. Does this mean the program is over? We don’t know. Nobody does. And that is just the beginning of why this program is a perfect illustration of why Obamanomics will fail.

Does Nothing for Environment: Sens. Dianne Feinstein (D-CA) and Susan Collins (R-ME) are open to allocating more money for the program, but only if the rules are changed so that the program might actually do something for environment; because right now it is not. Edmunds.com auto analyst Jessica Caldwell explains why: “What you buy has to have an increase in fuel economy from what you traded in. But in some cases, that increase can be minimal. Owners of large pickup trucks like a Ford F150 only have to buy a replacement that increases efficiency by one mile per gallon. And they still get a $3,500 rebate. The environmental impact is negligible and the impact on national fuel demand and consumption is very small. The only real benefit in a like-for-like swap can be improved emissions standards on newer vehicles. Rather than discourage those people, they included them in this program.” Caldwell didn’t even mention the pollution costs of actually building a new car and the disposal of the old car, rather than just the pollution caused by driving the vehicle.

Hurts Working Americans: The federal government’s push to help auto makers has unintended consequences which will hut many lower-income Americans. Economist, Freakonomics author and New York Times blogger Steven Levitt writes: “People who drive clunkers are generally not in the market for new cars. Presumably their replacement car will be a used car. The increased demand for used cars will lead to higher prices for used cars.” Driving up the cost of older cars may be an intended consequence for policymakers to encourage people to buy new, but it’s a bad deal for consumers.

Hurts Charities: Speaking of ads, you probably have heard a ton on the radio from charities asking you to donate your old in exchange for a tax deduction. Do a Google search of “Donating Cars for Charity” and you will see a list of charities that cash-for-clunkers is taking money from.

Further Entangles Government in Market: The program has already spent $150 million and has another $800 million to $850 million in obligations. What that means is that the nation’s auto dealers have already paid car buyers almost a billion dollars but are still waiting for their cash from the federal government. The USA Today reports: “Carmakers and dealers have booked expensive advertising to capitalize on buyers’ interest in CARS, and now will be left promoting a tie-in with a discontinued government program — one that wasn’t supposed to end until Nov. 1. “Disappointed,” said Chrysler spokesman Scott Brown. “It’s too late to recall the ads,” says Beau Boeckmann of Galpin Ford, the nation’s largest Ford dealer, in Los Angeles. “We had increased our ad budget to get the word out. We are very heavy on radio, newspaper and getting direct mail together,” Boeckmann says. “Now what do you tell people when they walk in” for a clunker deal? “It’s tough.”

Only Adds to Debt: Just this week, President Barack Obama told Business Week: “We’re not going to be able to drive the next big stretch of economic growth through debt.” But the first $1 billion was also deficit spending, and the extra $3 to $4 billion needed to fully fund the program will also have to be borrowed. And much like most government programs, Congress was incapable of actually estimating how much it would cost. They are now facing the prospect of tripling down on a program only a week after it began.

When President Obama bailed out General Motors he told the nation his administration: “will not interfere with or exert control over day-to-day company operations.” But despite what he may believe, his cash for clunkers program does exactly that: it significantly interferes with the day-to-day operations of millions of companies nation wide. In that same Business Week interview mentioned above, Obama says: “What you haven’t seen from our Administration is a suggestion of a bunch of command-and-control, top-down, heavy-handed bureaucratic regulations that would bog businesses down.” But that is exactly what the cash-for-clunkers is. The fact that Obama doesn’t understand this basic economic fact should truly frighten all Americans as he plots more non-"command-and-control, top-down, heavy-handed bureaucratic regulations" for the health care, energy, and financial sectors. As one auto dealer told CBS News: “If they can’t administer a program like this, I’d be a little concerned about my health insurance.”