AIP Column: Cash for Clunkers is Not Good for a Free Market Economy

My AIP article today addresses the Cash for Clunkers program that has the Democrats and Obama just giddy. On the surface it appears to be a successful program, but if you think about it, the program is not good for a free market economy that is powered by the decisions of individual consumers. When the government gets involved and meddles with those decisions by trying to manipulate the American people into spending money on products the government wants, especially those that have a political benefit for the government, we can get into trouble. Here’s a portion:

The Administration has learned a dangerous economic lesson: government programs that subsidize a particular activity or product will influence people’s behavior and cause them to buy things that the government wants them to buy. This may explain why Obama and his liberal allies are so giddy over Cash for Clunker’s apparent popularity. What will Obama do with this new-found knowledge? We can only speculate, but one real possibility is that we can expect additional programs like this to sprout up, all in the name of saving the economy and the environment.

Take, for example, the federal tax credit on replacement hot-water heaters. Like “rebates” that many companies know will never be turned in, the benefit can be illusory: the consumer doesn’t get his money back immediately, and by the time tax season rolls around, the required receipt may be long gone. If the government was instead giving away cold, hard cash for replacement hot-water heaters, people would likely rush to the nearest home improvement store with their “clunker” heaters in tow for a rebate on a new high efficiency hot water heater. Or how about Cash for Kilns? The government could give rebates for people who trade out their old, inefficient and in some cases monstrous furnaces for new high efficiency furnaces. But why stop there? With Cash for Glass Obama could offer cash rebates to people to replace all their old, drafty windows with new, draft free windows. Better yet, why not create Cash for Mother Gaia and offer a cash rebates for a entirely new, environmentally friendly house? The possibilities for such schemes are endless.

This all sounds rather innocuous doesn’t it? Who could argue with encouraging people to save energy, especially when the program’s purpose is to help the economy and the environment. But there is something a little worrisome about how easily American consumers can be manipulated when the government throws cash around. This worry is not about American consumers, who after all are just behaving in predictable ways in reaction to what is available in the marketplace. The concern is with the Administration’s glib willingness to manipulate and control consumers’ purchasing patterns.

Read all of my take on the Cash for Clunkers. What do you think? I’d love to hear your thoughts either here at Wizbang or at the AIP article itself.

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