Cash for Clunkers: A Bad Idea

The following is a guest post from Marotta Wealth Management.

Recently President Obama signed an additional $2 billion into law, tripling the original expense of the "cash for clunkers" program. The president describes the program as a "proven success" because it is stimulating the economy and will reduce carbon emissions. You should examine such economic claims carefully regardless of your politics.

Most of our public officials evidently are willing to opt for the expedient solution, slapping a Band-Aid over a fracture and calling it healed. Unfortunately for the American people, these same politicians do not understand they are responsible not only to their present constituents but to future generations.

Henry Hazlitt's classic book "Economics in One Lesson" should be required reading. Politicians, especially those too busy to read the legislation they are voting on, could take Hazlitt's thesis to heart. He writes, "The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

To evaluate the long-term effects of the cash for clunkers program, consider the real-world example of Jerry and Janny. They have two children and are expecting a third. The couple owns a Ford Expedition with 144,000 miles that gets 14 miles to the gallon (mpg). They've been interested in getting a replacement and are taking advantage of the cash for clunkers program to subsidize it.

Thus the government handout is merely accelerating Jerry and Janny's plans to purchase a new car. But this small acceleration in new car spending won't last. Compare it to the energy levels of a college student who drinks caffeinated beverages all night cramming for an exam. The immediate stimulus is followed by the inevitable slump.

Neither is the cash for clunkers initiative truly green. The Ford Expedition still has value as a used vehicle. It may not be shiny new, but it could continue to serve Jerry and Janny or another family for several more years. Instead, the regulations require it to be completely stripped and destroyed within 180 days. To measure the true carbon offset from this program, you would need to compare the increased gas efficiency of a new vehicle against the energy it takes to scrap old cars and build new ones.

Jerry and Janny's car is usually full of kids. So the small hybrid vehicles that Obama touts when praising this program are too small for them. They are deciding between the GMC Acadia and the Saturn Outlook, which both average 19 mpg. They could probably help the environment more by just inflating their tires.

As a result of this misguided program, the price for used cars will increase both unnecessarily and artificially. Many cars worth less than the offered bailout will be traded in to be scrapped. Charities will receive fewer automobiles as donations. And people who are struggling financially won't be able to find a clunker that costs less than $4,500. The program seems to encourage new car ownership at the expense of the used car market. The rationale behind it is neither economically nor environmentally sound.

When considering the entire carbon footprint of this program, you will find that continuing to drive your current used car for as long as possible is one of the most green-friendly things you can do.

On one hand, the price of scrap metal may go down, and the price of used parts may go up. On the other, scrap yards may ignore the rules and salvage usable parts anyway. The more useless and wasteful the government rules, the more people learn to break them. Maybe that's why the Soviet Union developed such a large black market and the country today has such thuggery and disregard for the rule of law. A loophole exists when the government hasn't tied you down enough to remove your free will completely. A black market is simply the result when the government tries to remove all the loopholes.

A country can't prosper destroying perfectly good used cars. At the end of the day we still have increased taxpayer spending to pay for destroying a perfectly good car. Hazlitt describes the fallacy behind thinking that when a hoodlum breaks a baker's window it will stimulate the economy. The glazier may make a simple argument in favor of broken windows, but he overlooks the secondary consequences.

Bad economics is easier to present in a sound bite, but that doesn't mean we should heed the glazier. We must be willing to think holistically or else the hoodlums and glaziers will win and the breaking glass will continue. Only in this case, the government is the hoodlum and the automobile unions are the glaziers.

Consider who gains from the cash for clunkers program. Follow the money. General Motors (GM) makes both of Jerry and Janny's prospective cars. The three largest stakeholders in GM are the U.S. Treasury (61%), the United Auto Workers Union (18%) and the Canadian government (12%).

Any earnings that cash for clunkers generates for GM will not create additional profit and growth for the American people. It will be recycled back into government and union coffers. But like all government programs, it is an inefficient method of graft. Foreign automakers will benefit from many of the stimulated new car sales. Essentially, our taxpayers are also subsidizing the economies of Japan and South Korea.

The government chose the auto industry as deserving of such a redistribution of resources because it essentially belongs to them now, and it is failing. The cash for clunkers program surreptitiously serves to benefit their supporters to the detriment of others.

So should Jerry and Janny not purchase the car they want for a $4,500 discount? Of course not. If their children will have to pay the interest on the money we are borrowing from China and Japan to pay for this program, they can at least receive some of the inefficient benefit.

The great illusion of success in the cash for clunkers program comes from its visibility. You will inevitably know someone who appears to have benefited from the program, and it our elected officials will cite it as a reason for their reelection. Vote the bums out! Good economics requires us to consider what this $3 billion could have accomplished if we had never removed it from the wallets of American citizens or mortgaged against our children's future. Some people could have started a business or hired more employees. Some might have been able to buy a clunker for $3,400 and then been able to travel to a better job across town. Some might have paid off their mortgage or just paid down some of their debts. However they would have spent it, it would have been better spent.

Comments

[lurker carl]

Uncle Sam would have us believe folks are getting rid of their gas hog SUVs for economical cars. But the government is known for manipulating numbers in order to obscure the truth. To make this plan look like a runaway success, the auto czar is counting every engine/transmission combination, 2 and 4 wheel drive within each model line as INDIVIDUAL models. Instead of using the voodoo system dreamed up by government bean counters, Edmunds counted actual vehicle sales by the model only regardless of how it's equipped.

The real sales figures show trucks and SUVs make up the bulk of the best selling vehicles in the Cash for Clunkers program. What a big surprize, folks are essentially buying a new version of their old clunker.

[Lord]

Yes, it is sooo much better to spend $30B on Bear Sterns. You really have to wonder when people suddenly discover economics; they usually have an axe to grind. The program is not ideal, but none is. It is timely, temporary, and targeted which is stimulus at its best. If the average new car sells for $20K, it is putting 5 times as much into the economy as it costs. Even if it only borrows from the future, that is just what stimulus means, more sales now when the economy needs it, fewer in the future when it does not. Yes, it costs, but so do idle factories, idle labor, and idle money. People only like to count the costs that support their position and discount those that do not. Now this isn't a program one wants to run forever, but it isn't, it is only stimulus, no different from what most businesses do in the similar situation.

[CDM]

I'm not a big fan of how we're rewarding people who bought guzzlers in the past, but this does help reduce pollution given that many of the new cars that were purchased were already built and so were kind of an environmental sunk cost. Dealers and surrounding local businesses benefit from this program and many trade for much more efficient vehicles. Going from 15 mpg to 25 mpg saves 40% on fuel and this could be significant for a family's longer term budget. Also, getting more on your trade than it's worth improves a a family's financial situation compared to waiting longer to buy a vehicle. These sales are often pulled ahead ones, but they're pulling from sales when the economy will presumably be better, and those "lost" future sales won't hurt as much then as they help now.

[StL Pastor]

Government spending is not a zero sum game right now-we are deficit spending. I'd certainly be happy to trade an improved economy right now for a slight slowdown of growth in the future-I'd like to avoid the business cycle.

Right now, the government needs to fill the demand gap created by increased consumer saving so as to avoid the vicious cycle of decreased consumption leading to decreased production leading to decreased consumption, so of course cash for clunkers is a good program-the multiplier is huge on the 4,300$, what with consumers throwing in the rest of the money for the new car, presumably out of savings, and many people are buying new cars when previously they might have bought used *which acts as a counterbalance to the increased demand pressures on used vehicles from the cash for clunkers program*. The example of Jerry and Janny is designed for the worst case scenario for someone using the program, which is uncharitable at best. Not to mention, small increases in gas millage at the low end of the spectrum have the most bang for the buck. Going from 14 mpg to 19 mpg means that you go from spending 7.14 gallons to go 100 miles to 5.26 gallons to go 100 miles, a 35% improvement, or assuming you drive a conservative 10,000 miles a year, saving about 200 gallons a year-nothing to shake a stick at.

[Lord]

One really has to ask where people concerned about the deficit were the last decade. Were they part of the problem or the solution?

[bill]

Clunker car plan takes toll on charities
Tuesday, August 11, 2009
By Liyun Jin, Pittsburgh Post-Gazette
The federal government's "Cash for Clunkers" program has given a badly needed boost to the ailing auto industry at the expense of charities that rely on car donations to raise funds.

"People who would normally donate their car are now turning them in to dealerships," said Kevin O'Donnell, president of Donate for Charity, a for-profit nationwide car donation program based in San Ramon, Calif.

He said the phenomenon boils down to numbers. While those who donate vehicles to charity receive a tax deduction for the price the car sells for at auction -- typically $500 to $900 -- the Car Allowance Rebate System (the program's official name) offers a $3,500 or $4,500 rebate for trading in a used vehicle.

"You're looking at $800 versus $4,500. It's not a hard answer what to do," said Mr. O'Donnell.

Most charities depend on a third-party organization, such as Donate for Charity, to handle donation logistics, such as calling towing companies and auction houses. The organization receives a commission from the auction and gives the rest to the charity.

Donate for Charity -- which gives 80 percent of auction proceeds to charity -- typically processes 500 cars each week. Last week, that number dropped to 400.

Locally, Goodwill of Southwestern Pennsylvania hasn't calculated the numbers yet, but, "We expect it might have some impact," said David Tobicyzk, vice president of marketing and development.

The nonprofit collects 4,000 vehicles annually in this region and holds an auction every week in Westmoreland County. The proceeds are used to support Goodwill's programs.

"We appreciate the efforts by our legislature to develop a program that is both environmentally friendly and encourages auto sales, but we are concerned about the unintended consequences on nonprofit organizations like Goodwill," said Mr. Tobicyzk.

An organization called Vehicle Donation to Any Charity has already seen the impact from Cash for Clunkers. The third-party organization based in Richmond, Calif., has experienced a 20 percent drop in car donations since the program began, said CEO Mark Jones.

July and August are typically the peak period for the organization, with about 1,200 cars processed each month. This year, though, numbers are down, Mr. Jones said.

The Cash for Clunkers program directly affects the kind of vehicles that ordinarily would be donated.

"These are $1,000 cars that people don't bother selling, that might have been donated before," Mr. Jones said. "Now, they can get $3,500 or $4,500. Might as well go with that route."

As for the Senate's decision last Thursday to give the program $2 billion more in funding, he said he was "definitely not pleased that they're throwing more money at it."

Prior to Cash for Clunkers, car donations during the recession remained relatively steady. Mr. Jones said Vehicle Donation to Any Charity did not experience a drop in volume, but the auction prices for used vehicles fell dramatically beginning last September, matching the fall in scrap metal prices.

Donate for Charity reported that donations were down 10 percent last year. Mr. O'Donnell said the recession may have delayed donations. "Some people are just going to the mechanics, hoping to extend the life of their car a little longer. But the car's still going to die in a year or two, so we'll just get them then."

The last time car donations were hurt by federal measures was in 2005, when tax law was changed so the amount a taxpayer could claim for donated cars was limited to the amount it sold for at auction. Previously, taxpayers could deduct the "fair market value," which in most cases exceeded the auction price.

Even then, car donations "weren't decimated," said Mr. O'Donnell. "You still had to get rid of your old car."

That's part of the reason why charities are hopeful donations will be resilient this time around, too. Donations might have dropped even further, said Mr. O'Donnell, except that Cash for Clunkers only accepts trade-ins that meet certain criteria. For instance, the vehicle must have a new combined city/highway fuel economy of 18 miles per gallon or less, be in drivable condition and be continuously insured and registered to the same owner for the full year preceding the trade-in. Part of the goal of the program is to get low-mileage vehicles off the road entirely.

In contrast, charities are grateful for any vehicle they can get.

"A lot of the cars we get have mechanical issues like a blown head gasket. They wouldn't be eligible under Cash for Clunkers," said Mr. O'Donnell. "If they had taken cars with mechanical issues, we would've been devastated."

University of Pittsburgh economics professor David Dejong, who said it was a "no-brainer" that people would turn away from donating vehicles while the program was in place, said Cash for Clunkers might be hurting other industries, as well.

Suppose a person needed both a new car and washing machine, he said. "The program breaks the tie, so I do the car instead. So it influences which durable good I move away from and a possible side effect is that it's hurting other industries."

Looking at the bigger picture, though, Dr. Dejong had a more forgiving view of the program: "I think it's probably the lesser of two evils: doing nothing or getting a fairly effective and timely fiscal stimulus in place."

Read more: http://www.postgazette.com/pg/09223/989993-84.stm#ixzz0NuRwfjGW

[bill]

7 Reasons Why Cash for Clunkers is a Bad Idea

The government's "Cash for Clunkers" Program may seem like a good idea to stimulate the economy and bolster car manufacturers who are all experiencing a major slump in sales. However, this "Cash for Clunkers" Program has several negative effects that make this program another bad idea from ignorant politicians. Here are 7 reasons why the "Cash for Clunkers" Program is a bad idea.

First, the "Cash for Clunkers" Program is only a short-term increase in car sales. Since car manufactures are sitting on a glut of new cars, this program will only decrease inventory levels and provide needed cash to struggling car manufacturers. This does not mean that car manufacturers will resume building more cars at the pre-recession rate, thus the decline in employment in the car manufacturing business will not improve. Without the creation of new jobs, the "Cash for Clunkers" Program does not have any long-term benefits to the average person or to the overall economy.

Second, the United States Government is using tax money and/or borrowing more money for the "Cash for Clunkers" Program. An increase in taxes is not going to stimulate the economy. Actually, it probably will have the opposite effect. And borrowing more money from other countries is only going to hurt the U.S. more in the long-term (Are you noticing a trend yet?). Finally, most of this money is going to end up in the hands of people and companies (who are mostly foreign too) who are already wealthy, thus they do not need to be subsidized by the American people.

Third, the United States is destroying a large number of perfectly functioning automobiles that cost up to $4,500. The government is basically harming the used car market. A lot of people are unable to afford a new car, even with the "Cash for Clunkers" Program in affect. Furthermore, this program is increasing the cost of old cars by decreasing the supply of old cars that dealerships would normally have. Therefore, the people who need the most financial help are being hurt the most.
Fourth, another way of looking at this issue is that people who would have normally purchase a used car are now more likely to purchase a new car. This is a new car that the purchaser might not be able to afford the monthly payments on. Again, this program is increasing the risks to both borrowers and creditors. Again, this could harm the economy even more in the long-term.

Fifth, this program is an incentive for people to trade in their perfectly working cars earlier than they normally would have. As a result, this puts people more in debt or at least sooner in debt when purchasing a new car, instead of waiting until a time they could better afford a new vehicle. This may help banks that lend money, but this hurts the average person.

Sixth, the environmental impact of the "Cash for Clunkers" Program is questionable. As a self proclaimed environmentalist, this statement may seem a bit odd. First, new cars will only have a marginal benefit in miles per gallon when compared to older cars. Second, when taking into account the cost to recycle a perfectly working car, the environmental benefits is less than just the miles per gallon gain the new car owner experiences. Third and finally, the amount of energy and resources to build a new car that would have been normally sold years later increases the environmental impact too, especially since future cars will be even more environmentally friendly than today's new cars. As a result, the environmental benefits of the "Cash for Clunkers" Program are dubious at best.

Finally, the lesson that the government is teaching is that the best way to get out of the recession is to consume more instead of saving more. At a time when jobs are difficult to attain and keep, this does not seem like a good idea to me.

After reading this article, I think you will find that the "Cash for Clunkers" Program is not as a good idea as it may first appear. Actually, it may be a very bad idea.

http://www.philforhumanity.com/Cash_for_Clunkers.html

[Jordan]

Personally, I can't wait for the cash for Tube TVs promotion. The government needs to get on this. I would buy a new energy efficient LCD TV if the government would chip in $500 for my old energy hogging tube TV. Such a program would help the environment and stimulate the economy.

At least a program like that wouldn't incentivize people to drive instead of taking the bus/train.

[Jim]

More biased garbage from Marotta.

Where was Marotta's outrage over the 100's of billions of $ that was thrown at Wall STreet in the past year? A relatively small $3B given as handouts to consumers illicits such negative reaction then he must have totally blown a gasket about all the money thrown at AIG right? Yet I don't recall seeing that editorial. Why?

[Mr. Chipping]

I looked into the program, because my car qualified, but decided against pursuing it because it would have meant taking on an auto loan. I'd prefer to save up for another year or so and pay cash for a "new to me" used car, rather than take on a loan and car payment. I would guess that a lot of the people taking advantage of this program, while getting a fat subsidy, are also taking out loans for the balance. Given all the misaligned incentives for borrowing that led to the current recession, should the government be encouraging people to do more borrowing? Sounds like a recipe for another bubble.

[Brent]

I'm looking at other posts and I read a lot of "but what about all the money spent on [some other govt. program]!!!" From my perspective, that is not very sound reasoning. You can't justify bad policy because someone else in the past had an even larger bad policy. Just for the record, I'm against bailouts, TARP, Stimulus, and all these other wasteful programs.

It make me wonder, if the CARS program has tripled in cost after a month, what will the real cost of government-run healthcare be?

[Maria]

Morrotta raises some good points. Like the people shouting about socialism in town hall meetings, this article would be much more effective if those points were made without the vitriol.

The major point missing is the one that weakens the overall argument: cash for clunkers is an excellent economic stimulus. Car dealers contribute to the overall economy. States struggling with lower tax revenue will be buoyed by the sales tax coming from this. And overall, fuel consumption will go down, which is an excellent investment for the individual and society.

[robert w.]

Pry my Clunker from my Rusted hands.
My 'clunker' is 13 yrs old and gets 20 mpg highway/18 city.
It easily fits 6 'American' sized adults not 'Japanese midgets' with real comfort.
For a balance sheet reason to use this government scam
gas would need to go to 6$ gall. and the new car get at least 45 mpg city while fitting 'American' sized adults.
I'll drive my clunker until the gov. OUTLAWS replacement parts. (next year?)
OH no 5 -7yrs loans.

[TheMightyQuinn]

Lord: "One really has to ask where people concerned about the deficit were the last decade."

You're kidding, right? You're comparing Bush's billions to Obama's trillions? Did you applaud Obama's order to cut $100 million as "a good start"? Good grief.

[DrToast]

People actually give Marotta their money to manage? God help those poor souls.

[Todd]

Good points to consider, however, I see one major fallacy in this scenario. A Ford Expedition with a 144,000 miles! Ha. I am not sold on the marketing ploy that American made cars now complete in quality. Quality is job 1. I have heard that campaign or something like that for the last 30 years, and domestic builders the still have inferior vehicles.

I think that this last year in DC has confirmed that politics comes first and everything else in second. That goes for both parties. Cash for clunkers is nothing more than leveraging my future by running up the national debt. You would think our government would know better as they had a first hand view of what happens when a little financial pressure is applied to an over-leveraged business. At least it should know, since we the taxpayers now own several of those failed entities...

[Mike Hunt]

Cash for clunkers is yet another example of how Obama makes terrible economic decisions for this country.

The magnitude isn't so big- $3 Billion is 1/2 a day deficit spending for this year- out of the $2 Trillion, a rounding error at best.

The idea from the administration is that we can raise fuel economy while stimulating demand. Let's examine this further:

Raising fuel economy standards is the right thing to do for our country but this should be enforced in CAFE standards for all cars. This program compromises too much and throws a bone at all the automakers as they don't have to make more efficient cars, they can just 'trade up' a consumer into an existing model. It's a gimmee for the automakers.

The other half of this program is the idea that if we dispose of something with partial utility we can create economic growth, this is akin destroying buildings and rebuilding to stimulate the economy. It's wasteful because in aggregate we are destroying assets with marginal value. Stupid, stupid, stupid. And all we are doing is pulling forward demand. Remember when GMAC offered zero percent financing and employee pricing for everyone? Well I did and the annualized sales of GM shot up to $20 million units based on those promotion months. What happened after? Sales fell off a cliff and never came back.

So I ask you now, what will happen when the CFC program finishes? Same thing, car sales will fall off a cliff yet again.

If anyone feels different please let me know what you think is wrong with my logic.

-Mike

[StL Pastor]

TheMightyQuinn,

TARP is technically a Bush program. The biggest bailout-AIG-was well before Obama was in office, and it looks like a fairly good percentage of that money will get paid back. We can argue about stimulus spending (wise or not) but its a one off program-a one time major increase in the national debt. The thing that bankrupts us is long term obligations. If health care reform fails to bend the cost curve at all, then they will be Obama's trillions, and we'll be in serious trouble, no doubt. Right now, military spending and Medicare part D are the biggest problem in government spending right, and that's on Bush's wasteful wars and refusal to bargain with drug companies.

[Greg]

In all probability, the majority of people opting for this program will not pay cash for the remainder of the balance on their "new" car so they trade a decent, workable, "paid for" car in return for a monthly car payment of $200 - $400 a month and a pretty stiff increase on their insurance. Yeah, sounds like sound economical planning to me!

You go from a worry free zero dollars a month to having to come up with about $500 a month in these "tough economic times".

Next we'll hear about bailouts for clunker repos!

[lurker carl]

Congress rushed another $2 billion into the the program. "Cash for Clunkers" is now a clunker in it's own right, showroom traffic dropped way down and shows no signs of picking back up. Many months of future car sales were captured in July, bleak times are ahead for automobile sales regardless of the government bribes.

Maybe this program should have been introduced BEFORE hundreds of dealerships were cut free from their franchises. At least those folks forced out of business would have had a successful final month.

[ethel]

I love how this is posed as an "economics lesson" and then:

"But this small acceleration in new car spending won't last. Compare it to the energy levels of a college student who drinks caffeinated beverages all night cramming for an exam. The immediate stimulus is followed by the inevitable slump."

Uh, where's the "economics" in this? Where is there evidence that the economy works like a college student? I must have missed that in my Adam Smith or Friedman. Does this guy even understand how stimulus works? Maybe he should review the lesson from World War II, when massive government stimulus led to the greatest economic boom that lasted through the 1950s, long after much of the stimulus spending was gone.

There's an argument to be made that this program isn't real stimulus, but this isn't that argument. I too feel sorry for anyone who would invest their money with this joker.

I feel like the level of quality in this blog continues to deteriorate. There are enough other choices out there (see, I'm talking like a real economist) that handle these topics with much more analysis and nuance that I've become very tempted to unsubscribe.

[FMF]

FWIW, threatening to unsubscribe because you don't like an article (and then back it up with a broad statement like "the level of quality in this blog continues to deter"), does zero to influence what I post here.

Constructive criticism is welcomed. Threats are ignored.

[DT]

This sentence:

"Any earnings that cash for clunkers generates for GM will not create
additional profit and growth for the American people."

really set me off. If the American taxpayer is supplying the money
to GM via the US Treasury, whom does the author think profits if GM
*does* do well? Whom does the author think works at the plants and
assembly lines of GM and the hundreds of down-line parts suppliers?

I'm not in favor of TARP, TALF, cash for clunkers, etc. But the
examples and arguments posed by this essay strike me as poor.

I am disappointed that FMF decided to bring this author's
low quality opinion to my attention. I've read better opinions
in the comments than in the original article.

[FMF]

DT --

If you don't do so, you should always read the comments here. There are some real nuggets shared. I often re-post some of the best, but there are so many good ones that I can't get to them all.

Everyone --

As a general note, it's always interesting to me when some feel so strongly that an author has a "low quality opinion" and others think he's right on target. It happens frequently on the posts that have any sort of political angle. I can't help but wonder if the opinions are motivated by political leanings or simply the true worth of what the author posted.

Don't get me wrong, there's usually a disagreement of some sort on most posts, but the level seems to be turned up a few notches when the post even remotely impacts politics.

Just an observation...

[DT]

I quite agree, reading the comments here is useful
and enlightening, and yes, I read the comments. I
usually consider the article+comments as a unit.

LOL, in fact I time-delay some of my readings here
just so the comments can build up a bit ...

[DT]

FMF, while I would agree with your observation, I would
like to point out why I think this article was poor, and
why I think it was poor choice for your blog.

The author's use of the "real-world example of Jerry
and Janny" is a cover to illustrate his points, but
his example seems contrived. Is this example real?
Does he really know this couple? The author supplies
no evidence.

The author's use of a single example to support his far
reaching conclusions regarding the entire program shows
a lack of research and understanding.

The author's sentence:

"They could probably help the environment more by just
inflating their tires."

is a major telling point which struck me as evidence
the author's single example was, indeed, contrived.
It certainly made this essay more of an opinion piece,
and not one of facts.

The author's sentence:

"When considering the entire carbon footprint of this program,
you will find that continuing to drive your current used car
for as long as possible is one of the most green-friendly
things you can do."

is also an opinion, and not given adequate coverage in his
essay with facts and figures. When he elaborates on this
sentence, his elaborations are more opinions, not facts.

Indeed, this is a low quality article you have posted to
your blog. If one drops all the politics and just tries
analyze the reasons and motivations of what this article
is saying, I believe *all* your readers will conclude that
the author tries to present his opinions as facts.

As a thinking person, I disagree with FMF's choice of this
article on grounds that it does a poor job of stimulating
my thinking in a non-partisan, constructive way.

Whether I agree with essay's conclusion is immaterial, the
author's content does a poor job guiding me to it.

[CDM]

Funny how when somebody goes into debt to invest in a business, it is usually seen as wise because it can lead to growth of revenues. But when it comes to our country, many people say that we shouldn't invest in it to give it a shot in the arm. I suppose we should let it deteriorate as tax revenues go down and more jobs are lost and more companies close? I worked with an older gentleman a long time ago who sarcastically would say that our company was going to "save its way to leadership."

This is just a general philosophical comment, only mildly applies to CARS, but CARS made me think of it.

[FMF]

DT --

Thanks for being specific. Now I can see where you're coming from.

I'm sure you've also noticed that some people liked the piece (or at least agreed with the conclusion.) Thus is the life here on almost every post -- some agree with it and some don't. What some see as poor writing others think is a masterpiece.

I don't know if I could ever write a post that would please/be loved by everyone. And if I could, I'm not sure I'd write it. Instead, I prefer to post on a wide range of topics from many different sides -- including those that are contrary to my own opinion. I believe it makes it more interesting blog and discussion. That's why I cover a lot of topics and have many guest posts. In addition, I post frequently (three times per day in the summer, four times in non-summer months) so that if readers don't like aparticular piece, there's another one coming up soon that they may like.

It's a balancing act for sure. And while I try to keep everyone challenged and informed, it's almost an impossibility to keep everyone happy all the time. :-)

[FMF]

CDM --

Also reminds me of the whole "good debt, bad debt debate." Ugh.

[LotharBot]

"cash for clunkers is an excellent economic stimulus"

Not really. All that happened is that everyone who would've traded in an old car 3 months ago waited for the C4C $ to come through, and everyone who might've waited another 3 months pushed up their purchase to take advantage of C4C. There seems to be no increase in total purchases, it just so happens that several months worth of purchases got compressed into a week.

Want an "excellent" economic stimulus? Cut taxes across the board. Don't do it through targeted incentives that people can only take advantage of if they buy a new car or get their gazoinkazoo waxed; that's an excellent stimulus for automakers (and therefore the US and Canadian governments and UAW) or gazoinkazoo waxers, but not an excellent stimulus for the economy.

[rwh]

I'm sure the program is accelerating new car purchases as well as taking advantage of pent-up demand, but as David Brooks says in his support: it's timely, targeted and temporary. And we need stimulus now, not later.

I disagree with Brent that there is no difference between the 3 Billion for this program vs the hundreds of billions that went to Wall Street. There is a huge difference. It's simple arithmetic. The other big difference is people can understand this program, but most of us, myself included, don't understand the financial markets, particularly the exotic stuff that caused all the trouble and why companies we bailed out can be paying huge bonuses just a few months later while unemployment continues to rise.

I agree with the original post that environmentally it is less than advertised. I hate that perfectly good cars are being destroyed. They won't even recycle the engines; they have to destroy them. That's a terrible idea. But this law is a product of our representative republican (small R) system.

Marotta weakens his message (and makes my eyes glaze over) when he brings up the USSR and rails against unions. Just make your points and let your position support itself.

[Norris Hall]

JD Powers forecasting firm may raise its outlook for 2009 U.S. industrywide sales by 200,000 units, taking into account the runaway success of the U.S. government's "Cash for Clunkers" incentives to trade in old gas guzzlers for more fuel-efficient vehicles.

The program helped boost July auto sales to the highest annualized rate of 2009 to date, raising guarded optimism among industry executives and analysts that the market had hit bottom after a severe downturn that forced General Motors Co GM.UL and Chrysler Group LLC to restructure in bankruptcy.

[Mike Hunt]

CDM,

Normally when a business invests in an asset or equipment there is a business plan and payback calculation. CFC is a compromise between mildly raising the CAFE standards of vehicles on the road and pulling forward demand. Really it doesn't do much as an investment for the country.

Revenues are dropping because people are out of work. The gov't cannot eat it's own tail on this one. Unfortunately we need to cut gov't costs to get debt down and make our economy sustainable. It's true in the last decade we went on a credit binge, both individually and as a country. Obama was supposed to be honest with us and help us fix this, as he promised. That pledge got him re-elected. Now that he's in power it's back to keeping the status quo and trying to inflate another bubble.

So yes- the gov't needs to cut their own spending. US GDP will suffer a lot but we will hit a solid floor and make a durable recovery. All the policies right now are going to cause us to stay in limbo 20 years since the cost of debt servicing will impede any growth. As usual the politicians took the less painful option and now pass the burden to us in the future, and our children.

Mike

[rwh]

"As usual the politicians took the less painful option and now pass the burden to us in the future, and our children."

But you blame Obama completely. Politics is the art of the possible. Obama doesn't make legislation, he only signs off on it or vetoes it after Congress sends it to him. The last time I looked Congress is made up of 535 politicians, each with their own agenda.

[Mike]

I can't help but laugh at the uproar caused by this tiny program. Seriously, you're mad at the $3 billion for this program? That works out to about $10 for each American. Wow. The outrage.

In comparison, the Iraq War had been costing us $10 billion PER MONTH. More than three times as much every single month.

For some strange reason, I suspect most of the people who are outraged at CARS are the same people who supported the Iraq war and defended it as just. I just can't put my finger on what the common link is.

[Mike Hunt]

RWH,

Actually I blame the Congress as well. Obama just makes himself an easy target because of the economic hypocrisy that spews forth. However I don't see him exercising the veto much.

I've written to my congressmen and have made a lot of noise protesting the stimulus. It seems that the congress took my voice and many others and just ignored it. What's next? Make enough noise to get a critical mass and throw these bums out of office?

Now that would be change I can believe in!

Peter Schiff for Senate. Ron Paul for the Treasury Secretary!

-Mike

[kitty]

"Just for the record, I'm against bailouts, TARP, Stimulus, and all these other wasteful programs."

I am not a fan of Obama policies, but let's be fair here. As StL Pastor, TARP started long before Obama.
Additionally, at the time TARP was introduced, we had no interbank or any business lending, Libor at 4.5% and were in danger of financial collapse. TARP may well help us to avoid the next Great Depression.

Not to mention - a little fact that everyone seems to ignore - that TARP is a loan with the government's getting a very nice interest rate and stock warrants. Companies who just repaid the TARP and especially those who also repurchased these stock warrants paid the government a very nice money. In case you guys don't know, Goldman, AXP and others who paid off the TARP and repurchased the warrants paid the government over 20% (annualized) on their investment. Doesn't seem like a bad deal, does it? So far there have been only a couple of defaults on TARP interest, and these were a couple of small banks who shouldn't have been part of TARP anyway - a whole lot less in losses than what the government earned in interest. AIG is risky, and there still may be losses there, But BAC is likely to repay TARP soon too and also with nice interest.

As to cash for clunkers - it does seem to stimulate the economy at least temporarily. There are taxes collected on every new car sold and while these are less than what is paid under this program, the people who are employed at dealership rather than laid off pay income taxes too. So it seems like some of this money will come back. Plus, I don't know about you guys, but I sure like what the stock market has been doing lately. At the very least, we may get a nice selling opportunity.

[Cars4Charities]

Many of the cars turned in under cash for clunkers are in good condition. These cars should be given to charity car donation centers and either distributed to the poor or sold with the charity using the proceeds to further their mission.