As you’ve undoubtedly heard by now, before heading back home to see their well-dressed, Nazi-sympathizing, angry elderly constituents concerned about the future of their health care, senators on Capitol Hill last night approved another two billion dollars for the “Cash For Clunkers” program which was the toast of the town while I was gone in Poland.
The program has been hailed by people on all sides of the political aisle as the best thing since Al Gore invented sliced bread and Barack Obama squeezed crude oil from wind turbines, but I don’t get it.
Even Larry Kudlow was lauding the program in a piece at Real Clear Markets:
In virtually no time, the clunker program has become a national pastime. It has captured the public’s imagination in a way that no other federal stimulus has. Everyone is talking about it. And I truly believe that consumer spirits have been buoyed by the prospect of going out and buying a new car — even with federal assistance, and even under the duress of federal mileage standards.
After a very dreary year or two, people might just have fun trading in their clunkers and buying something new.
Even today, as unfashionable as it sounds, and given Washington’s attack on horsepower, Americans are still in love with automobiles. They still like going to showrooms, checking out the new models, inhaling the great new-car smell, and yes, kicking the tires and making a buy. Cars may no longer be the heart of our economy — that’s all techie, information gadgets now. But folks still love the car thing.
Now, I wouldn’t want the government to pass out free money for everything. But in this particular case, the cash-for-clunkers rebate program is working. It’s working so well that it’s running way ahead of the computers that are administering it at the Transportation Department and Citibank.
Well, sure. That’s government for you. But unlike most of the rest of the fiscal-stimulus plan, this program actually works because the federal cash rebate actually contributes to a consumer purchase. It’s not just another welfare-type transfer program.
I get that the CARS program sold cars. I understand that, and understand why. Even my wife asked me, last night as the news of the $2 billion extension rolled across the television screen, what I thought of our aging minivan. After a second of irresponsible thought, we both agreed that until the minivan starts costing more to service, repair and maintain than a small payment on a newer vehicle, it’s better to have no car payment on one of our two cars.
And that’s the crux of the issue, isn’t it? While I wonder about the effects on the used car market and the consequences with regard to the bottom line for those in the salvage business, my biggest concern is that the Cash-For-Clunkers program, regardless of how popular and successful it may seem on its face and in the short term, not only purged the new-car market of consumers who would potentially be buying a car later, but more importantly made sure that those who took advantage of the program who were not in a position to buy a new car in the near future, people who might have been having trouble making rent or mortgage payments in the first place, were suddenly saddled with a new lump of debt and a new car payment they would not have otherwise had.
Our founders likened debt to bondage. George Washington warned in his farewell address that America and Americans should avoid the accumulation of debt. Thomas Jefferson, who knew quite a bit about both bondage and debt (he was indeed a slaveholder and, privately, quite a spendthrift), nonetheless said that “[t]he maxim of buying nothing without the money in our pockets to pay for it would make our country one of the happiest on earth.” The famously frugal John Adams deemed a culture of debt as the easiest way to “enslave a nation.”
So, yes, the CARS program might have provided a short-term band-aid to a floundering automotive market, and it might have made a negligible difference in fuel economy on American roadways, all of that came at the expense of a increased debt burden at a time when unemployment is on the rise, the value of the dollar is decreasing, and the economy is teetering on collapse. Inasmuch as the federal government foisted auto loans upon many people who should not have been borrowing more money, much the same was done with the auto industry as was done during the 1990s for the housing market. And we see where that got us.
Government has no business in the automotive business, just like it has no business in the housing business, or the healthcare business. If the federal government would just maintain a laissez faire approach to governance in the first place, none of these populist remedial measures would have been necessary at all.