Monday, August 3, 2009

Cash for Clunkers is Bad Policy

There's been tons of talk the past several days about the government's $1 billion cash for clunkers program.

The program has already (or is about to) run out of money, and at the end of last week the House approved an additional infusion of $2 billion.

There is some pushback in the Senate (John McCain has threatened a filibuster), but the NYT is reporting tonight that Dianne Feinstein and Susan Collins have just dropped their opposition because, they argue, the program is being used to purchase more fuel efficient cars than it actually requires.

This program is really, really bad government policy and it frustrates me that Obama, and his Administration, are so strongly behind it. The problems with it include:
  1. It doesn't give nearly enough bang-for-the-government-buck in terms of improving fuel economy. I've just checked on the website and the rebate is $3,500 if your new car's MPG is 4-10 miles better than your clunker and $4,500 if the new car's MPG is greater than 10 miles better. Four miles? Come on, that is ridiculous.
  2. It incentivizes consumption in the absolute worst kind of way -- causing people to prematurely trade in their cars and purchase new ones (largely on credit, I imagine).
  3. Because many of the new cars are being purchased on credit, we get more of the anti-savings mentality that led to the housing bubble.
  4. The clunkers have to be scrapped -- this is good from an environmental perspective I guess, but it means fewer low-price cars are available for those who cannot afford something more expensive.
  5. It's another example of tax/spending policy being used to create incentives (and distribute wealth and goods) rather than aiming for more fundamental behaviors that should be influenced and guided by a healthy, functioning government.
I don't think my opposition to this program is either liberal or conservative -- it's just common sense. Tonight I read an opposition piece in The Wall Street Journal, but I want to find a strong liberal voice that also criticizes it.

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