The so-called "Cash for Clunkers" legislation is out of money after 4 days and those in congress who know nothing about basic economics are running around like the proverbial chickens with their heads cut off; screaming for more good money to follow the bad.
For those living in a closet, the program was designed to reach a couple of goals;
1) boost sales for the flagging auto industry...a good portion of which the government now owns after stealing majority interest away from the stockholders and pensioners.
2) get more people driving "politically correct" automobiles
3) force lower income people onto public transportation...or if unavailable...out of work and onto the government dole
"Whoa" you say...you never heard about goal number three? Duh...of course not...the manipulative demagogues in DC never spell out their hidden agendas clearly and plainly (hence the term "hidden agenda"). For those folks mentioned above (the closet dwellers) this agenda has been out there for a couple of decades...mother earth is weeping you know, and the enviro-nut types have been pushing everything from housing clusters, to public transport, and even to dramatic population reductions to help the old gal out.
Never mind the "old gal" has been hanging in there for more than 5 billion years and has survived everything the galaxy has thrown at her...THIS is a planetary emergency and drastic measures have to be taken!!! After all, the global temperature might rise by a degree or two in the next couple of hundred years...then again, scientists say it might drop by the same amount. NO MATTER...WE MUST PANIC NOW!
So Cash for Clunkers is just another stupid program to make the salivating nut cases out there think they are fooling us into acting the way they feel we're too stupid to act without them.
For those without an education in Economics...especially if you've fallen for the dealer sound bites about what a wonderful weekend they had and how they sold soooooo many cars the recession should be over lickety-split....allow me to pour a little cold water of reality on the situation.
Let's first create an example; a grocery store. Let's say the manager forecasts the next few weeks are "make it or break it" time and cash flow has to pick up or he'll have to close the doors.
He decides to make a bold move....everything in the store goes on sale 2-for-the-price-of-1 for one week only. As forecasted the store is packed the next week...people especially purchase all they can carry of necessity goods that don't spoil. Toilet paper...light bulbs...detergent...canned goods. The manager is ecstatic.
Then the following week comes along. Sales are suddenly down even more than before. A couple of weeks later, sales are still in the toilet...and the store closes its doors.
What happened? People pre-purchased stuff they knew they would need for the next few months, sometimes longer. They no longer have to go to the store...they have most everything they needed. Fresh goods, they still come in for...but everything else they're stocked up on, and did it at half price...reducing the store's margin below profitable levels.
Just because you pay half the usual price for laundry detergent doesn't mean you'll do laundry twice as often. You just store away the extra and shop less often.
It's the same with autos. If you've got a clunker, you're eventually going to trade it in for a new car...that's the normal option. By incentivizing you to trade it in next week, the dealer gets a deal now...which he would have gotten a few months down the road anyway. So now the deal doesn't come through the door at a later date. The dealer has gained nothing but an earlier sale.
Cars aren't like candy...if you get a great deal on candy you may eat yourself sick...then buy more. You won't go buying extra cars because of a sale...you'll simply buy your car when the sale happens.
Net result...despite the hoopla, no more cars will be sold than would have been sold otherwise. So what is the result? The answer can be found in the legislation...to be specific, that section that spells out the complete and total destruction of the car traded as well as its engine. The idea is to make sure that car is not available to anyone...period...no matter how well it may have still run or how many years it might have served a person needing cheap transportation.
How many cars are purchased for under the $4500 price ceiling this program can pay for a trade-in? Hundreds of thousands every year! They go to students, recent graduates, folks who need a second car for emergencies, military families, those down on their luck who need basic transportation to find and keep a job...most of us have been there. My first car, which I needed to get to my first job, cost a whopping $25 and I sold it a year later still running great.
That market place has taken a nose-dive! People have jacked up the prices for the most basic beater they have in their driveway. Recently I sold an old van, which I was simply tired of paying insurance for, at a price of $500. It wasn't pretty, but ran great, got over 20 mph, and didn't burn an ounce of oil between changes.
The man who bought it was unbelievably grateful...it was perfect for him. He'd just gotten a job as a contractor's assistant and needed something big enough for his tools that was dependable and affordable. It made me feel good to see him so excited and happy to find such a deal.
A person would be crazy now to sell a vehicle like that...it's worth up to $4500 in credit for a brand new car. Why should I care if a usable vehicle would simply be destroyed rather than help someone keep their job and pay their bills?
Any economist will tell you, even at first glance, this legislation is designed to hurt the low-income and struggling members of our society. There are a number of reasons those in power completely support this concept...some mentioned above...others having to do with increasing dependency, and therefore loyalty, to the nanny state.
I know...pretty cynical...this would be the first time in history a government tried to manipulate behaviour...not hardly!
That has been the history of governments for the last couple of thousand years...what a shock the US government is finally beginning to follow historical patterns. A lot of us have apparenty forgotten why our founding fathers established this nation in the first place...how we were supposed to break the historical mode of tyranny.
But how about saving the planet? Poor Mom Earth is still weeping you know! Here's a thought...how much energy goes into building an automobile? Actually, more than a life time of energy that will be saved running it if you're simply increasing the mileage by 5 or so mph.
When you crush a car which might have run another 50,000 miles or more, you're actually throwing away evergy that can be far greater than the savings you would experience with the new car over that 50,000 miles. Add to that the energy used to destroy the car and it's engine, and the toxic chemicals used to freeze the engine, and old Mother Earth is wondering what idiot thought up this scheme.
When the numbers are crunched...big surprise...this program creates more pollution and waste than it saves. Destroying autos that simply have to be replaced by industrial generation is not "green"...it's "brown"...and a very dirty brown at that. This situation does help illustrate how bright the enviro-nuts actually are of course.
This program does put money into the pockets of the middle and upper-middle class...money which the IRS will have to get back from them at some point of course...but people feel good up front. The "green" types will get all fuzzy and warm, there will be some positive publicity from those short-sighted folks in the media, and some folks will get a new car a bit sooner than otherwise....other than those "advantages" I'm still digging hard to find some reason to support this legislation.
I guess too many years in economics and business have just ruined my ability to fantasize a good result out of a stupid government program. Sorry about that...hope I didn't ruin someone's otherwise blissful day...
Go buy a new car...I know it always makes me feel better.
The Professor
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