WSJ: Cash for Clunkers “One of Washington’s all-time dumb ideas”

Regular readers of this blog have been well-versed in the numerous failures of the Cash for Clunkers program. But the Wall Street Journal went straight for the government jugular with this searing op-ed piece:

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best “the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day’s gasoline use.” Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, “Economics in One Lesson,” you can’t raise living standards by breaking windows so some people can get jobs repairing them.

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.


Interestingly though, new car sales for Ford only dropped 5% (from 2008 sales figures) during the month of September, the first post-Cash for Clunkers sales period. Yet measured against last year’s sales, Chrysler was off 42%, and GM was off 45% in September. Why such a lop-sided differential in sales between the “Big 3” auto makers?

The state-run news media seems to be deliberately avoiding a direct discussion of the biggest difference between Ford, Chrysler, and GM — Ford was not bailed out by the Federal government; consequently, Ford is not being managed by White House “czars” and the UAW.

In the midst of a steep recession, Americans have clearly voted with their dollars. Despite the wishful thinking of liberals both in the press and in the White House, it seems clear that a majority of Americans are not excited about the Federal government, already a lumbering behemoth with the power to suffocate anything it suddenly disfavors, getting into the car business. Our politicians would do well to remember this the next time talk of “bailouts” begins swirling around Washington DC.

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