Thanks to the Obama administration’s new Car Allowance Rebate System (CARS), known as Cash-for-Clunkers, American taxpayers are now subsidizing car owners to do what they would have done eventually—scrap their old cars and buy new ones.
CARS is perversely profligate in numerous ways, among them the fact that car dealers must waste time filling out onerous paperwork to get reimbursed by the government and adding legal riders to contracts with car buyers regarding liability for rebates. Mechanics must squander effort draining each car’s oil, then donning protective suits and carrying out a dangerous procedure involving pouring sodium silicate on the engines to make them “seize up” and cease to function.
This government-mandated engine genocide is a huge problem for auto parts sellers, who earn the bulk of their income reselling engines, motors, and transmissions—all of which must be intentionally damaged and made unsalable to comply with program rules. Government inspectors will go around making sure engines have been properly desiccated, a precondition for dealers and car buyers to claim refunds.
More disturbingly, for those who can barely afford to buy a used car, the reduced supply of used engines will lead to increased, often prohibitive costs for used cars that, having been decommissioned by mechanics, cannot be resold to potential buyers. That’s looking out for the little guy!
For those concerned about the “environmental impact” of the program, the plan unfortunately won’t help on that front, either. According to the director of Columbia University’s Center for Climate Change Law, the energy required to produce a new car more than offsets any fuel savings from driving a used car for a few more years. Without the program, car buyers would have ended up buying more fuel efficient vehicles anyway, because most vehicles are made to be more fuel efficient nowadays.
The one thing we can’t foresee is what those in high enough tax brackets to fund most of this program would have done with their money if they could have kept it—say, devoted it to more profitable, wealth-creating investments of their own choosing?
If all of this isn’t enough to convince you the program is a slam dunk, there’s also the matter of how it’s been administered. Congress allotted $1 billion and originally expected the funds to last 100 days—from July 24 to November 1. They didn’t enact any sensible precautions on the limits of the program—say, no more than 20 clunkers bought by each of the nation’s nearly 20,000 car dealers—until the program’s impact could be measured. This is, of course, because Congress is not managing its own money, but rather maintaining an “infinite balance sheet.”
Shockingly, Congress underestimated the cost of its new program and the rate at which people would lap up free money. Rae Tyson, a Transportation Department spokesman, insisted on July 28, “When we get close, we will start alerting dealers so they don’t get caught with a deal in the pipeline. We’re not going to leave them hanging. We’re not going to run out of money in a couple days.”
Two days later—surprise!—the Transportation Department announced that the program had run out of money and would be suspended at midnight. Tyson should have concluded his statement, “When we get close, we will start alerting dealers… OK, now!”
So the program’s funding lasted six days. Assuming a steady rate of access by dealers over the intended life of the program, the actual rate of use so far has been 17 times as high as lawmakers anticipated. Were the program to be funded at its current rate until November 1, it would blow through $17 billion.
Representative David Obey, chairman of the Appropriations Committee, speaking on behalf of lawmakers who want to dump more money into CARS, declared, “Consumers have spoken with their wallets, and are saying they like this program.”
Note to Obey: “speaking with your wallet” is usually used when the wallet owner chooses to purchase a product or service with his own money, not when he gobbles up a heavily subsidized goodie that he would have bought in a few years on his own.
Saying Cash-for-Clunkers has been “wildly successful,” as many reporters have decreed, is like saying that a program designed to give out $4,000 checks to anyone who’s willing to cash them has been “wildly successful.” Cash-for-Clunkers would have been a colossal failure if it hadn’t run out of money in less than a week.
The sudden revelation that people like free money led to confusion over continuance of the program: word got out from the Transportation Department that the program was bankrupt, but Press Secretary Robert Gibbs insisted to reporters on Friday that it would continue through the weekend and beyond. In other words, the Obama administration, caught in a jam, simply lied, when it had no idea whether additional funding would ever be approved or not.
John McEleney, chair of the National Automobile Dealers Association, and numerous car dealers across the country have reported on the risk they face that the government will not reimburse dealers for buying clunkers, given the precarious state of program funding. They have also complained about the confusion regarding rules and continuance of the program, contradictory statements from government, inability to make future plans, and the havoc all of this has wreaked on their businesses. All of which augurs well for the long-term beneficial effects of CARS on the economy—because if there’s anything the market loves, it’s confusion, conflicting information, delay, and chaos!
House Minority Leader John Boehner noted, “There are a lot of questions about how the administration administered this program. If they can’t handle something as simple as this, how would [they] handle health care?”
The Cash-for-Clunkers debacle should be viewed as a test run for Congress’ overhaul of the nation’s health care system.
Break out the sodium silicate.
