A Clunker Of A Program

Jason Kuznicki takes a look back at one of the economically stupidest and vicious things that the government did in the past two years (and that’s saying something, considering how much policy stupidity has abounded):

See how that works? You can’t get something for nothing. Cash for Clunkers turns out to have been a highly inefficient wealth-transfer program, that is, one that destroyed a bunch of wealth along the way. It gave wealth to those already relatively wealthy people who did the government’s bidding (that is, those who could afford to part with a used car and buy a new one). And now it’s taking wealth from those relatively poor people who need a used car today — in the form of higher prices.

Along the way, it destroyed hundreds of thousands of cars — that’s the real wealth these poor people don’t have access to anymore, because the scrapped cars aren’t a part of the economy.

And this is what passes for a successful government program.

And I had idiots here in my own comments section applauding it as being a “success” because so many people (willing to take handouts) participated in it. This is the same kind of warped thinking that declares a legislator “successful” if he passes lots of legislation, regardless of its quality, or how damaging to the Republic it is. I’m always amazed and amused at the morons who think that I should be impressed by the president, and approve of him more, because he managed to ram so much of his destructive agenda through.

24 thoughts on “A Clunker Of A Program”

  1. We should all go out and break some windows to do our part to get the economy going. Remember, the more windows broken the better off we’ll be. Same principle heh?

  2. Did you read the source data? Nah, thought not.

    The actual market segment that Edmunds (the referred to data source) are actually talking about are nearly new used cars. Not entirely sure that somebody looking for a used… say….

    Audi A5 3.2 Premium Plus quattro 2dr Coupe AWD (3.2L 6cyl 6A)

    Is suffering from higher prices because my 1996 Jeep Grand Cheroke got crushed.

    Also they put this in their reference data:

    Edmunds.com assumed a 60-month loan term, no down payment with a typical finance rate for new cars and a typical finance rate for one-year-old used cars.

    I’m pretty sure that the Cash for Clunkers program made very limited impact on the availability of 1 year old used cars compared to, well, let’s image that about 2-3 years ago there was an ABSOLUTELY enormous contraction in car sales caused by… well… a major economic contraction that led to a collapse in new car sales.

  3. Oh, but I will tell you something – if you do want a deal on a 1-2 year old used car? Something tells me that 2011 is going to be a fantastic year.

  4. Late 1990’s was the vehicle right in my price range. Having only worked 2 out of the last 4 years I won’t be able to afford a car newer than 12 years old for quite some time.

  5. OK, Daveon, I’ll play. I went to the source data and read it. Now I have to ask, “Did YOU read it?”

    “The average price of a three-year old car is 11.1 percent higher than it was last year – the highest year-over-year increase since Edmunds began keeping records in 2004.

    Used cars of all ages are about 5.5 percent more expensive than they were last year.

    Typically, the year-over-year increase is less than 3.5 percent.”

    ??? What part of “used cars of all ages” did you not understand?

    In economics 101 terms, used cars are an inferior product, which means the demand curve for that product shifts inversely to a shift in income. If income drops, demand for inferior products increases (think hamburger vs steak). Now, unlike other products, the supply of used cars is fixed. You cannot go out and “produce” used cars. As anyone who’s taken basic micro-econ will tell you, if the demand curve shifts right, and supply remains the same or is REDUCED (that is what cash-for-clunkers did) then market equilibrium price must increase. That’s precisely what has happened as the data reveals. How much of the increase was caused by cash-for-suckers I don’t know, but some of the increase undoubtedly was.

    Say what you want about the social benefits of cash-for-clunkers. But in economic terms, destroying what had value doesn’t make sense. In this case, that mindless entity called a free-market has responded once again according to its rules, not those of the idiots in Washington.

  6. Right on cue it’s Daveon, with the usual idiocy.

    “Something tells me that 2011 is going to be a fantastic year.”

    Yeah, more and more people are going to be turned off by ObamaCo’s socialist agenda. Oh, that’s not what you meant?

  7. Daveon, there is absolutely no defense for cash for clunkers.

    1) Destroying value reduces wealth.

    2) Redistribution of wealth is a secondary issue.

    Anyone that can’t understand the first point should never have anything to say about electing leaders of a country, any country.

    As for the second point, thievery is a criminal act. It’s about time we stopped rewarding these jerks for doing it.

  8. Except the market for used cars went through the floor between 2005 and 2008. Since everybody was offering zero percent finance on new cars during that period, demand went down. Consumers price cars on “how much is my payment” and if a new car payment is lower or the same they buy new.

    Second, the cash for clunkers program was never intended to be a long-term thing. The goal was to keep carmakers from collapsing.

  9. The goal was to keep carmakers from collapsing.

    At a huge cost to the overall economy. Carmakers should go bankrupt and be restructured. That’s what bankruptcy is for. Instead, the problem of huge pensions remains and they will collapse anyway… unless the taxpayers foot the bill again and again and…

  10. Consumers, Chris, make all kinds of decisions based on their own situation. Like mine five years ago to buy a clunker for a one time payment of $500. All of which has absolutely nothing, not one damn thing, to do with the fact that cash for clunkers was economic idiocy both long and short term. It is not defensible and your attempt to do so is [almost] beyond belief.

  11. Chris makes a good point about the market for used cars and so does Steve about supply/demand.

    If the demand and the price of used cars was low during cash for clunkers, then it would make sense that after the program was over that there would be a higher % increase of used car prices because more people would be able to afford used cars instead of subsidized new ones. Combine that with the restricted supply and you get an even bigger increase in price.

    On one hand people think of destroying the clunkers as destroying wealth. On the other hand Obama’s goal was to get old cars with low mpg off the roads and help the environment. It would of worked except as another Edmund’s study showed, most people bought new trucks.

  12. The biggest problem with the program, as others have said, is that it helped people who probably didn’t need the help to buy new cars. If it was a Bush program, it would be derided as Clunkers for the Rich or something.

    It also hurt lower income people by taking away used cars they could afford to buy and hurting the used car parts market. A destroyed clunker can’t give new life to other old cars through their usable parts.

    Perhaps if the clunkers were not destroyed, there would of been a stimulative effect on the used car market. A win win for the rich and poor.

    I understand people’s dislike of the program altogether but we give out tax credits and rebates for all kinds of things, why not cars? IMO, it was a good idea but poorly implemented.

    As much as people hate cash for clunkers, it was probably the most successful part of Obama’s stimulus efforts. Which says a lot about what Obama has done for the economy by spending $ 1 trillion.

  13. I’m not defending Cash for Clunkers, although I could.

    I am pointing out that the data supplied says NOTHING about the effective of Cash for Clunkers on Used Car Prices.

    Andrea: I was, as I made clear, referring to the Used Car Market – but whatever makes you happy.

    Steve A: …if the demand curve shifts right, and supply remains the same or is REDUCED (that is what cash-for-clunkers did) then market equilibrium price must increase.

    Except the supply wasn’t just reduced by Cash for Clunkers – the near collapse in the car sales market during 2008/9 will have had a far more significant impact.

    Besides any data which says “usually” and references a sample of 6 years, 4 of which were during a massive economic bubble with cheap cash and credit is pretty suspect as a core data source.

    Ken: Destroying value reduces wealth…

    Did my wealth go up or down with me replacing a 1994 Jeep Grand Cheroke with 200,000 miles on the clock with a Brand New Subaru Forester?

    At a huge cost to the overall economy.

    What would the cost of the loss of GM and Chrysler been to the overall economy in comparison?

    A quick Googling has the cost of GM alone failing at $156bn in terms of unemployment and other costs for the region, Cash for Clunkers was what? $3bn? Sounds like a bargain to me.

  14. Second, the cash for clunkers program was never intended to be a long-term thing. The goal was to keep carmakers from collapsing.

    Except the Cash for Klunkers boondoggle mandated MPG requirements that drove a high percentage of the buyers to Japanese and Korean auto makers. I’m sure the Japanese and Korean economies loved the program but for American auto workers, taxpayers, and those who could only afford used cars (you know, the ones the Democrats claim to care so much about), it was not a good deal.

  15. although I could.

    Heh, except Wodun made all the points I would have done.

    It was a purely Keynesian stimulus which, for the purposes of the car industry, along with the bailout, seems to have worked… at least for now, I suspect that GM isn’t remotely out of the woods.

    Seriously guys, if you’re going to claim things, use data that supports what you’re saying rather than stuff that some guy on a blog has made up that you agree with!

  16. The key point, The government added to the overall Debt to write checks. Then at the point of the trade, the used car that was traded in had a non-zero value. The program required that that value be destroyed. This is the destruction of wealth/value in the economy overall.

    So if you look at the entire system it added debt and destroyed value.
    By this logic the government should give us all checks to burn down our houses. That will make the economy better.

  17. Did my wealth go up or down with me replacing a 1994 Jeep Grand Cheroke with 200,000 miles on the clock with a Brand New Subaru Forester?

    Your wealth went down. You paid money for a brand new car, which depreciates faster than 90% of the goods on the market. Your overall wealth has been reduced by the instant depreciation of the asset that you purchased.

    Cash in a savings account, even at current low rates, will still out-pace the depreciation on a 16 year-old car after it is already 16 years old. Even junkers that barely run can fetch $500-$2000 when sold to salvage operations.

    And if you financed the Forester, your wealth is decreasing at an even faster pace with the interest you’re paying to service the debt on a depreciating asset.

  18. A quick Googling has the cost of GM alone failing at $156bn in terms of unemployment and other costs for the region, Cash for Clunkers was what? $3bn? Sounds like a bargain to me.

    Yeah, it might sound that way if you were totally ignorant of the other $97 Billion that the taxpayers had already given the Big 2.

  19. I understand people’s dislike of the program altogether but we give out tax credits and rebates for all kinds of things, why not cars? IMO, it was a good idea but poorly implemented.

    Woosh. The point here is that most of us don’t like the activity of giving out tax credits and rebates for “all kinds of things”. You are arguing that because we squander money in many other sectors of the US economy, that we should then squander money in the automobile sector. That makes no sense.

    As much as people hate cash for clunkers, it was probably the most successful part of Obama’s stimulus efforts. Which says a lot about what Obama has done for the economy by spending $ 1 trillion.

    What do you mean by “success”? It blew three billion in public funds and destroyed considerable value. It also greatly harmed the US’s future economy recovery by helping keep alive two car companies that should have passed through bankruptcy court. At least, some of the ARRA money went to moderately useful things like building infrastructure of some value.

    I’m not defending Cash for Clunkers, although I could.

    Right. Daveon, you have a remarkably poor ability to defend stuff. Your “defense” usually boils down to gloating about how dumb people here are.

    I am pointing out that the data supplied says NOTHING about the effective of Cash for Clunkers on Used Car Prices.

    That’s a false statement. The evidence favors the hypothesis that Cash for Clunkers raised the cost of used cars. Here, evidence, such as a recent history of used car prices, has “resolving power”, it favors certain hypotheses over others.

    It was a purely Keynesian stimulus which, for the purposes of the car industry, along with the bailout, seems to have worked… at least for now, I suspect that GM isn’t remotely out of the woods.

    Your assertion says NOTHING about the effect of these measures on the US economy. Here’s how my logic works. Would you be saying the same thing no matter what happened? Yes. Hence, your words have no resolving power and we can’t use them to select between hypotheses.

    A quick Googling has the cost of GM alone failing at $156bn in terms of unemployment and other costs for the region, Cash for Clunkers was what? $3bn? Sounds like a bargain to me.

    The federal government has sunk something like 50 billion into the auto companies and counting. Further, that alleged cost of unemployment (which probably wouldn’t occur in a GM bankruptcy since someone else would buy the property and continue to employ the most productive/profitable of those workers) has to be balanced against the cost of allowing a weak company to live and employees to continue to work in a money-losing business.

  20. I stand corrected, use Titus’s figure. Two thirds of a complete GM failure has already been accounted for.

  21. Daveon,
    Your major malfunction is that you fail to understand that in a persistent down economy, the price of used vehicles should drop consistently as the recession persists because people get increasingly desperate for money until employment starts rising again.
    That prices of used cars rose, instead, by 5.5%, 2% higher than average, which is what you would only see in a very up economy where people had more disposable income to spend on buying spare cars up, demonstrates that the drastic increase in scarcity of used vehicles has made it increasingly difficult for those people who voted Obama into office to be able to afford to buy a used vehicle with which to find jobs and/or get to work if they are able to find it.

  22. Except the market for used cars went through the floor between 2005 and 2008.

    I keep reading this, but when I was looking, damned if that was what I found to be the case.

  23. I agree with Thompson. The very first thought I had about C4C was “This is an updated version of the ‘Broken Window Fallacy'”.

    —Tom Nally

  24. Karl,

    You said, “Woosh. The point here is that most of us don’t like the activity of giving out tax credits and rebates for “all kinds of things”. You are arguing that because we squander money in many other sectors of the US economy, that we should then squander money in the automobile sector. That makes no sense.”

    I am sure there are some tax credits you agree with and others like C4C that you do not. Maybe you would like tax credits for having kids, paying a mortgage, repaying student loans. In the business world, they call it using debt as a tax shield.

    I do think that because we squander money in some sectors that we shouldn’t be “fiscally conservative” in others. With a $ trillion deficit, I have a hard time understanding why we couldn’t squander some of that money on NASA. How NASA squanders that money is up for debate but I think they need a bigger budget.

    Then you said, “What do you mean by “success”? It blew three billion in public funds and destroyed considerable value. It also greatly harmed the US’s future economy recovery by helping keep alive two car companies that should have passed through bankruptcy court. At least, some of the ARRA money went to moderately useful things like building infrastructure of some value.”

    C4C did have a short term stimulative effect on the auto industry. I think it was a good idea poorly implemented. On this thread people have mentioned destroying the used cars but another example was the high administrative costs and the slow pace at which dealerships got their kick backs from the feds.

    By success, I mean that it was the most successful part of the stimulus. And you can see by my overall negative assessment of C4C, what I think of the stimulus.

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