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  • Cash for Clunkers Should be Called Cash for Auto Industry

    After passing in the House, the stage is now set for a Senate vote to pass the “Cash for Clunkers” bill that would offer up to $4,500 to trade in a used vehicle for a new one. Although the idea sounds good on paper, we’ve outlined a number of problems with the bill: Consumers typically replace clunkers with slightly newer clunkers or used cars, the program would distort the used car market by reducing the supply of used cars at a time when demand has been increasing, the voucher exceeds charity tax deductions for used cars, the environmental benefits are dubious, and its estimated cost of $4 billion is largely unfunded:

    But the $1 billion set aside for the auto-purchase program is far short of the full cost of such an effort, estimated at $4 billion. The $1 billion is expected to fund the program through Sept. 30, the end of this fiscal year, according to two congressional sources close to the negotiations who asked to remain anonymous.

    This week, Sen. Debbie Stabenow, D-Lansing, who sponsored the Senate version of “cash for clunkers” legislation, said she was comfortable with winning approval for money to start the program, with the idea that additional funding could be approved later.

    Legislation establishing a program passed the House this week, but Senate supporters had struggled to overcome disputes over funding and mileage requirements. Those concerns are unlikely to derail the war-funding bill, which includes $51 billion for operations in Iraq and Afghanistan, $5 billion to support the governments of Iraq, Afghanistan and other allies and other spending with broad support.”

    It’s somewhat ironic that policymakers are attaching cash for clunkers to a war-funding bill, when the Cash for Clunkers would aversely affect veteran charity programs like the Purple Heart Car Donations and many others.

    This bill needs to be called out for what it really is: another bailout for the auto industry. This is at a time when the Treasury recently announced additional tax deductions for new car purchases. Senator Judd Gregg of New Hampshire said in a statement concerning the bill,

    As the nation’s debt continues to climb to unsustainable levels, it is troubling that Congress is looking for even more fiscally reckless ways to subsidize the auto industry.”

    Senators Feinstein and Collins believed their cash for clunkers program would reduce pollution and stimulate the economy through improved car sales, but in their Wall Street Journal op-ed, they blamed lobbyists for mucking up cash for clunkers:

    Our “Cash for Clunkers” proposal was a win-win for the environment and the economy. Then Detroit auto industry lobbyists got involved. Soon a rival bill emerged in the House, tailored perfectly to the auto industry’s specifications.

    The House bill was written so quickly that one of its main components — a provision that would have excluded any vehicle manufactured overseas — had to be removed because it violated trade laws. But the worst item on the auto industry’s wish list is still at the heart of the bill — a provision that undermines fuel-efficiency standards.

    On Tuesday, the House approved this legislation, which would subsidize the purchase of a new Hummer H3T (16 mpg) or a new Dodge Ram 1500 4×4 truck (15 mpg), but not a two-year-old Ford Focus (27 mpg) or used Chevy Colorado (20 mpg). A companion bill is pending in the Senate.”

    As we’ve mentioned before, this is economist Frederic Bastiat’s broken window fallacy. The story goes as follows: A little boy breaks a shopkeeper’s window. After sympathizing with the shopkeeper, everyone begins to see the silver lining. The shopkeeper hires a window repairman, who will then use that money to buy bread, and the bread maker will use that money to buy new shoes; therefore, the little boy’s actions actually stimulates the economy. But this ignores the fact that the shopkeeper could have spent the money somewhere else, such as to buy bread for himself. The reality is the broken window reduces net wealth.

    Instead of breaking windows to “stimulate the economy,” we’re destroying perfectly good cars. Meanwhile, we’re handing out more taxpayer money and distorting the market by asking consumers to purchase cars they might not be able to afford without the tax incentive, and thereby incur more debt. Unintended consequences. They slip by politicians, frequently leaving the consumer to swallow the burden.

    Posted in Energy [slideshow_deploy]

    17 Responses to Cash for Clunkers Should be Called Cash for Auto Industry

    1. MAS1916 - Denver, CO says:

      Obama needs to plan a Blue Room strategy around His General Motors plans.

      Like the ABC infomercial scheduled next week, Obama needs to work with one of the other networks to push the clunker legislation with a free, one hour broadcast from the White House.

      As broadcast networks are positioning themselves for a government bail out, this seems good strategy. ( in fact, ABC already has it's top ten shows schedule for takeover by the Obama administration: http://firstconservative.com/blog/political-humor… )

      Helping Obama take over General Motors would really help the NBC ratings.

    2. Brian in Vancouver, says:

      The worst part is the environmental damage and increased carbon foot-print. Vehicle production consumes huge amounts of energy and also raw materials (that consume energy to produce). Normally that environmental expense is amortized over the life of the vehicle. But if you terminate the use of the vehicle (or appliance, etc.) prematurely, you have squandered that investment in materials and energy.

      Unfortunately, many folks completely ignore the cost of building a vehicle and only focus on its operation. Hence the popularity of that other environmental disaster: the gas-electric hybrid.

      The root cause of the US problems are too many lawyers and accountants relative to the number of engineers and scientists.

    3. Ron, Derry NH says:

      While the Dems are price fixing and creating a bubble economy not just out of housing but the entire food chain, they are blissfully driving the economy into suicidal reckless abandon with no value to measure against other than the limitation of ink in the treasury.

      They are in fact destroying the free market and the independent measurable reality that peoples free choice reveals in that market place.

      This is in fact another supreme take over of American values through government extortion by robbing the till, paying off another favored group and disguising it with rhetoric that sounds sweet and innocent.

      This is a lose lose situation where we pay the government more in tax revenue or loss services for them to swindle value from our ability to choose what we want to drive and leverage more power away from us and hand it over to the car industry with guile and treachery toward our very freedom not to be dictated to by our government!

      The slaughter of Americanism is in full gear with every Democrats insidious purposeful proposal of destruction of our personal will and freedom gained by our decisions to spend not theirs.

      We are witnessing the annihilating of liberty gained by governments respect for individual value, by its bankrupt moral decay with direct larcenous intent by proposed legislation that can't even be funded.

      This Democrat Party has revealed its destructive tendencies and its desire to become a forced socialist regime. We are in a lot of trouble with the economy still tanking and the next bubble created by the stimulus yet to be felt across the board not just in the housing market.

    4. Mike McLellen, Grand says:

      THE SKY IS FALLING, THE SKY IS FALLING!

    5. Tim AZ says:

      I can see an upside to this. This will be a boon to the used car parts market. Hold on to your clunkers they'll be worth more in parts to private citizens than in shreds to the Govt. Capitalism is a beautiful thing.

    6. mulberry VA says:

      When in decades past, went Packard,Nash, Kaiser,among some others, there was no bailout. Have some of those embelishing this takeover of the auto industry studied history, or are they just winging it?

    7. Charles Webb Va. says:

      I see Us losing just one more of Our Right Taking away Old Cars&Pick ups What People that restore these Classic Reminders of the past I got a 74 Chevy Pick up with a Big Block that get 6-8 miles to a gallon Now Were going to let the goverment take it away and Crush it It's worth lot's MORE than $4500 I'll never vote dem again They Snuk it in on an other bill They Hide it from the Public What kind'a Low life operates like this Obama is NOT The Messiah He's not The King People Got'a Start Standing Up For Our Right's

    8. Pingback: Garden State Patriot | ‘Cash For Clunkers’, Off-Road Edition

    9. Jerry from Chicago says:

      "Cash for Clunkers", are you kidding me? This is yet another "stimulous" bill for the auto industry, and not even limited to the vehicles produced by Ford, G.M and Chrysler. This is just another way for Washington to dip into our pockets. Is there no end to the ways this Administration and this Congress will conjure up to take more of our money in taxes? Who do suppose is going to provide the cash for these clunkers?

      STOP THE INSANITY!!!

      Those of us left with jobs in this country cannot afford to provide for the needs of all of our less fortunate citizens (and illegal aliens). We have our hands full trying to take care of the needs of our own families. That gets progressively more difficult when the government keeps taking more and more tax from us. To those who feel the need to provide for the poor in the U.S., and/or the rest of the world, I say "knock yourself out". Give away everything you have if it makes you feel better and I will applaud your generosity. But don't presume that the rest of share your philanthropic sentiments.

      I'm sick and tired of paying more and more in taxes; of politicians trying to buy votes with my money; of being made to feel by my government that I don't deserve what I have earned over a lifetime of hard work; and that somehow I owe the world's poor a living. When an individual decides to rob you and steal your money, the government calls it a crime. When the government does it they call it taxation. What gives one man the right to say that he is going to redistribute the wealth of this country by taking what I have earned and giving it to someone who hasn't earned it?

      If Mr. Obama wants to stimulate economic growth and employment he needs to cut taxes on business, cut taxes on personal income and capital gains. This will get people back to work. If he wants more money to help the poor, he should redirect government expenditures of the "Stimulous" legislation away from all of those ridulous "earmark" and pork barrel projects. Does this country need to spend another $20 million on John Murtha's airport with all of its three flights a day to Washington D.C.? Or would that money be better spent feeding our hungry or housing our homeless? Would the money "earmarked" for funding a study of how to take the smell out of pig manure in Iowa, be better spent on free clinics for the indigent? Looking at the top 100 wasteful "Stimulous" projects, there was a total of more than $1.5 billion dollars "earmarked" for repair of bridges that have no traffic, fencing around lake beds that have been dry for years, roads to nowhere, statues in parks that no one visits, etc. How many shelters for homeless people could be built and maintained with that money?

      And now these idiots want the tax payer to come up with more money for people who want to trade in cars on another one. B.S.!!!

    10. Thomas, Northern NY says:

      Stupid, stupid, stupid, stupid.

      Do the idiots in congress have nothing better to do with their time?

      I'm supposed to throw away my 2007 Yukon for a piece of tin that gets 10% better gas mileage?

    11. E Araiza, TX says:

      I cannot believe how fast these liberals are destroying this beautiful country. They rush legislation and spending to fix problems and all they are doing is destroying our way of life and ignoring the values that made this country great. I pray that people wake up and realize what these Democrats are doing.

    12. Barb -mn says:

      WASTE! BRIBE! SCAM!

      Clunkers make for good educational tools.

    13. Pingback: Cash for Clunkers Should be Called Cash for Auto Industry « Conservative Thoughts and Profundity

    14. Jaxon, St Louis says:

      I don't qualify because my car already gets good gas mileage. But my dad swears by the car buying process here:

      http://excarsalesman.typepad.com

      I have a feeling dealers are going to automatically increase prices because of the increased demand (artificial) for great MPG cars. So the thousands of savings from this bill for consumers is not entirely accurate.

      With the price increase, I'm certain some markets you'll come out even as if they never offered this voucher. It is poorly written legislation.

    15. David, Oregon says:

      The cash for clunkers bill is a total joke!! Just where is this money coming from? can you say TAX PAYERS?? Our government is trillions of dollars in national debt! Do we really need this stupid program? its only being promoted by car makers and dealerships because it only stands to benefit them. I am very disturbed about this program I dont even know how it got thru congress? And so far I am not too happy with our president I had hopes he would make good decisions, but so far not good!! My democratic vote may have been a mistake.

    16. Joe, Chicago says:

      I think cash for clunkers is a joke where is the money coming from, and if the tax payers are fliping the bill that is not fair because i do not drive a car and why should i have to pay for someone to buy a new car.

      there should be a cash for food or cash for housing or even cash for clothing.

      it is not fair that the auto industry is getting all this help and other industries are fending for themselves.

      first we pump billions into automakers and now we are pumping billions in auto dealers that is a waste of resources cars devalue so fast it is a waste of money

    17. Pingback: The Mickey Mouse Bailout Act « Prayer, News & Action

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