Cash for Clunkers: A Post-Mortem

The Wall Street Journal takes a look at the so-called “Cash for Clunkers” program a month after it came to a close.

So, how did it do?

Did the program create demand for new vehicles?  No:

Transportation Secretary Ray LaHood declared in August that, “This is the one stimulus program that seems to be working better than just about any other program.”

If that’s true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

But the program helped to stimulate the economy, right?  No:

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.

The government had no other choice but to do something radical.  Nothing like this has been tried before.  Actually, it has:

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.

The key to any recovery is the creation of wealth.  Government cannot create wealth.  It can only transfer wealth.  In this case, the government transferred future wealth (in the form of debt or inflation) to the present and managed to make us $1.4billion poorer in the process.  Wealth is created by the market, but only if left alone to do so.  Our government needs to stop meddling in a system it can’t possibly help.

2 thoughts on “Cash for Clunkers: A Post-Mortem

  1. You’re right, cash for clunkers was a clunker. It just destroyed 700,000 running cars. Due to that, used car prices are up and revenue from auto repairs and car donation are down.

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