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Cash for Clunkers Has a Strange Problem

Anthony Randazzo
July 31, 2009, 9:28am

This is one of the odder complaints coming out of Washington in a while. The dubious "cash for clunkers" car trade in program was suspended after just days of running. It turns out the money wasting program is quite popular and DOT said the money was being spent too fast.

The White House said Thursday it was assessing its options amid concerns the $1 billion budget for rebates for new car sales may have been depleted. The program officially began last week and has been heavily publicized by automakers and dealers. Transportation Department officials called lawmakers earlier Thursday to alert them of plans to suspend the program as early as Friday. But a White House official said later the program had not been suspended and they were reviewing their options to keep the program funded.

The real name for the program is the "Car Allowance Rebate System" or "CARS" (I'll bet someone has a job just coming up with this stuff). The idea is to trade in a piece of crap car that can still barely run for much more than the Blue Book value, up to $4,500, if that money is put towards getting a fuel-efficient vehicle. Essentially this is a subsidy for be people buying new cars. It is the government picking winners and losers in the market place based on what is politically popular. (I'm not a scientist, but I don't think putting 250,000 more cars on the road that get 22-mpg is going to stop global warming.)

Really, this is more of a deal to help out auto makers than the environment, never mind the struggling washer and dryer company or the light bulb company. Who cares about them or the jobs their industries are hemorrhaging.

For now, it looks like the trouble is that people understand the good deal they are getting from the government. I doubt that an extra couple thousand is what pushed most people over the edge to getting a new car. Either you were planning to or not, because there is still at least $10,000 more the buyer has to put up/borrow. And if you were, this is just icing on the cake, because another couple thousand doesn't add that much more to the monthly payment. Since everyone pays taxes (though not all pay income taxes), this program is partly taking from the poor to give to the middle class, the rich-ish. It is still unnecessary. Still redistribution of wealth. Still inequitable. And apparently the cash is flying off the shelf, so come on down, its time to buy, buy, buy.


Anthony Randazzo is Director of Economic Research


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