• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Is Cash for Clunkers Stimulating the Economy?

    Alan Greenspan says no:

    “It’s an interesting issue. I mean, I have qualms about the concept, but there is no doubt that that very extraordinary response is a very important indicator that the state of confidence in the economy is beginning to pick up. If we had been — the clunker program had been put in place six months ago, it would have probably been a dud.”

    FoxNews reports, “Greenspan said that the program has worked to get people to buy cars and move stock, but he wouldn’t necessarily recommend it as an economic fix.”

    The reality is, if you subsidize anything enough, people will buy it. And unfortunately for Americans, these $3,500 to $4,500 tax credits for more fuel-efficient cars do not come from Santa. The taxpayers are left to foot the bill. It’s worth stressing again that just because a policy is successful does not make a good policy. In fact, any policy that destroys perfectly good cars is probably the opposite of good (as many know, the subsidy is only given to consumers if the dealership destroys the used car).

    Yet proponents of Cash for Clunkers suggest the program is win-win-win. Good for the economy, good for the consumer, and good for the environment.

    While it’s good to see that consumer confidence may be on the rise after a long slump, it’s not clear whether or not consumers are increasing spending or simply shifting it. When consumers make the commitment to purchase a new vehicle, they will likely cut spending elsewhere to maintain their budget. This was the case in Germany where retailers took a big hit when the German government implemented a similar program.

    Expanding the program is, as Senator Jim DeMint (R-S.C.) put it, forcing our “children and grandchildren to have to pay for these cars.” Some have suggested that car sales would have gone up regardless and The Economist blog FreeExchange notes that “households out there looking to buy new cars aren’t those most in need of government assistance at this time.”

    And the environmental benefit? Bradford Plumer writes:

    “Now, as we’ve noted before, the actual environmental benefits of this program may well prove modest. The efficiency requirements for the new car were fairly lax: You could in theory trade in a Hummer that got 16 mpg and get $3,500 toward a brand new 18 mpg SUV. That’s still an upgrade (and, in fact, that trade would actually save more gas than upgrading a 30 mpg sedan to a 35 mpg vehicle), but it’s a meager one. And any energy savings from a marginal upgrade like that could be dwarfed by the energy required to manufacture the new vehicles (particularly since dealers have to junk the “clunkers” that get traded in—many of which are perfectly good, albeit inefficient, cars).”

    Freedomnomics author John Lott adds, “Oddly, it doesn’t really matter what the difference is in the gas mileage between old ‘clunkers’ and new cars. Replacing an 18 mpg car with one that offers 22 mpg, gets you a subsidy. But you cannot get a subsidy if you replace a 19 mpg car with one getting 45 mpg.”

    In the long run, cash for clunkers could have serious adverse consequences for consumers’ behavior when it comes to purchasing goods. If consumers come to expect a handout from the government, they may hold off on buying a new product. When the government provides subsidies, whether it is to businesses or individuals, it creates a dependence that isn’t easily forgotten. Cash for clunkers is simply another government spending spree going straight to the auto companies at the expense of the taxpayer. Lott goes on to say, “Only in Washington could a program that is spending money 13 times faster than was planned be labeled a ‘success.’”

    Posted in Economics [slideshow_deploy]

    28 Responses to Is Cash for Clunkers Stimulating the Economy?

    1. Norman R. Mc Donell says:

      Since the cash for clunkers is being paid with borrowed money and the government administrative work and cost is very high–I wonder if there is any way to estimate how much the taxpayers will be getting stuck for? It's got to be a huge number, while the Congress members are patting themselves on the back for traffic in the showrooms–there needs to be some attention focused on the "real cost".

    2. Glenn Atias says:

      Your comments are right on target.

      This thing is stomach turning. It's madness. The government picking and choosing to subside some people, but not others. Why is going from 18 to 22 mpg more noble than say, going from 19 to 26?

      So the more economical of a car you bought in the first place, the less likely you are to receive this subsidy. In other words, it's the government rewarding poor decision making. But worse, it's using it's public credit card to reward poor decision making. Subsidizing the exchange of paid-for cars for non-paid-for cars. Running up both public and private debt.

      It's the government using a gimmick to gin up auto sales, all so the mainstream media can scream "green shoots" in unison. All our problems stem from a giant credit and overspending bubble, and all our government knows how to do is create another one, and call it growth.

    3. J.C. Hughes, Texas says:

      The federal's leadership is behaving like the worst addicted gambler backing risky bets with people's futures. There is a lack of respect for taxpayer dollars. Cash for clunkers is just another feel good scam akin to Freddi and Fanny. Enough already! What is needed is a constitutional amendment forever blocking the federal's interference into private markets and people's economic affairs. National security is the only function the federal government should providing. Nothing more. Got to go as the Obama clan seems to be controlling the outside weather (humor). Thunder and lightning are threatening to shut me down.

    4. Vested says:

      I have a friend who owns an old farm jeep that "might" be worth $1000, but it needs $2000 work to keep it running.

      He wants a new SUV. So…………

      He traded the old ($4500 clunker) Jeep for an "approved" (cheap) economy car that had discounts and rebates built in, and drove out of the dealership in his new car after paying only about $5,000 cash (for a car with a trade-in value of about $7,000). Now, he plans to trade-in the "approved" economy car for a new SUV – which also have built in rebates and discounts.

      I love this guy…..I hate what our government is doing to our country.

    5. Larry Scruggs says:

      More goverment waist

    6. Pingback: Your Expert Is A Little… Flawed | Oliver Willis

    7. Clemento says:

      In truth, immediately i didn't understand the essence. But after re-reading all at once became clear.

    8. Ken, Lancaster, PA says:

      The wastefulness of destroying perfectly serviceable cars is unconscionable. For every Explorer engine that's intentionally ruined by being run to destruction under government-mandated procedures, there's another Explorer with engine problems whose financially struggling owner would benefit from the availability of a good used engine.

      Cash for clunkers benefits only a narrow slice of the public– it does nothing for those of us who buy only used cars, or those of us who drive an older car that gets over 18 mpg.

      The nail in the coffin is the price tag for taxpayers. As a user and restorer of older cars, I lose thrice: I don't qualify, good recycled parts are destroyed, which drives up prices… and I'm taxed to support the measure. Bad, bad program.

    9. J.C. Hughes, Texas says:

      Ken in Lancaster, well said. You've made some very excellent points on this topic.

    10. J.C. Hughes, Texas says:

      Larry S, you're correct about "more government waist". Theirs is growing larger while working Americans are growing thinner. Sort of a French thing?

    11. Grace, Florida says:

      How do people think it's stimulating the economy? No how, no way. Taking (in some cases) perfectly good cars off the road and luring people into debt in a very unstable economy. I know people don't have to fall for it but they do. What happens to the vehicles when they can't pay for the new ones. Not to mention the program was poorly constructed and implemented. Just another government cluster.

    12. Stache, Selkirk,NY says:

      Another case of government giving a benefit or handout to those who practiced finacial folly.

      The prudent who bought a 20mpg car ten years ago get punished.

    13. Dave Chelsea, MI says:

      If you thought an affordable, good used car was tough to find before — sit back and watch as the Government pays too much for these used cars, and then require each to be destroyed within 48-hrs of trade-in. Who in their right mind pays hard cold cash for an asset and then turns right around and destroys the asset purchased with the hard cold cash? Oh that's right – Team Obama and the Leadership in both Houses…….If not selling these domestically to help the financially disenfranchised, why wouldn't we have provided these "good" used cars for export purposes where those vehicles just might provide a leg up for someone trying to climb out of poverty? If not selling the usable vehicles outright, why would we not have dismantled them and sold the parts to folks that can't afford a new car, but do need to repair the vehicle they depend upon to provide for their financial security?

      There is NOTHING good about this program – other than continuing the precedence that our Government will pick and choose winners in the market place — Or, has the "Cash for Clothing" program been announced where we will bail out retailers that sell new clothing —- we'd probably have to shred any clothing traded in…we wouldn't want used clothing assets to fall into the hands of the poor……

    14. Betty Hanicke, Kansa says:

      Why destroy good cars when poor people would be thrilled to upgrade?

    15. Mary, Oklahoma says:

      After waiting 4 hours to find out that my son's clunker wasn't on the so called "list", the auto dealers stated that the program they received from the government wasn't working. But what did we expect anyhow…we are dealing with the government! Another waste!!

    16. Pingback: Ken Stadden’s MacroBlog » Cash For Clunkers: Criminally Wasteful

    17. Tim AZ says:

      Here's another way people will work the system. They trade in a cluncker for a new car. Some have no intention of paying the car off. They drive the car until the government backed payments for american cars are exhausted. Some foreign manufacturers are offering the same back up payment plans as well. I'm not saying they are going to quit their jobs. Some will lose their jobs thanks to our current govt. Others will simply lie about their employment status simply to partake in the free money. In about three to six months from now some of these cars will be returning to the dealerships they came from. Reducing the market value of used cars. Is taking money from a childs piggy bank a pratical or moral way to stimulate an economy that the child isn't yet able to participate in? The children that's who will pay for these failures of liberalism. But there will always be those who will participate in behaviors that promise free and easy money at someone else's exspense. How's that hope and change working out for you?

    18. Brian CA. says:

      About a year ago I bought a used SUV and my trade-in wasn't worth doing anything with. So instead of getting $400 in trade I gave it to a college student who needed a car to get to work. The previous time I bought a car I gave my old one to a Rescue Mission. Had this program been in existance then, two needy people would still be without transportation, the national debt would be higher and I would be $7,000 richer (I don't need it by the way).

      Just one more example of how liberal "compassion" is usually anything but.

    19. Gary- General Delive says:

      Obama's "plan" for America is to create as much chaos as fast, and on as many fronts as possible. What is this, but more unconstitutional, un-American CHAOS. The whole concept is absurd. The only people who are for it are the parasitical dolts, who imagine "they" might be getting something for free, based on taking other peoples money. That ain't the spirit that built America folks, but it is the one that will destroy it. Learn Chinese folks, they are up next.

    20. Rich Ferraro, Raleig says:

      I'm a service manager at Ford/Toyota dealership and I see no benfit to the overall economy or population for that matter with this program. Sure, the dealership sells a few more cars, but can take away from my service drive, but the big picture is: Our government was not meant to babysit every aspect of our lives, nor is it meant to take from most of us and give to the few! They are however responsible for most of the problems we are facing economially right now, but some of the burden has to fall on the takes. Let the takers go out and work and see what it's like to earn something rather than having given to them. These 3rd and 4th generation welfare slugs, foodstamp freebies and illegals should be cut off now!

    21. Ed Fresquez says:

      I know many people that would benefit from buying used cars that are currently being traded in for the Cash for Clunkers program. Some people don't have the means of participating in the cash for clunkers program. Yet the government is teaching us to destroy our used cars and not allow some poor family to take it and put it to good use. Destroy all the old clunkers that would probably last you another five years, and forget the good parts that could be used in repair shops that so many of us use. The obama people are free people and can make our own choice without sticking that carrot of fannie mae, freddie mac and clunker program in front us. Get together obama you are ruining our great Country the U.S. of A..

    22. Lynn B. DeSpain says:

      No more than giving an Alcoholic a case of beer. He's fine until the beer is gone, but sooner or later, he has to face the hangover, and the fact that he is a drunk!


    23. Brad S,, Detroit, MI says:

      Just imagine the devastation to the Charity organizations that rely on people turning in their "clunkers" to provide to those that really need cheap transportation.

      I bought a new car recently and as someone mentioned previously, my old car got too good of gas mileage to qualify. I am keeping it as my daily driver until the wheels fall off as it makes more sense to do that than to "give" it to the dealership for some ridicululously low trade-in amount.

    24. Terri from Ok says:

      I have two other points to raise.

      1. There will be a sharp new-car sales drop-off in coming months.

      2. Responding to coming inflation and frank opportunism does not mean the "stimulus is working".

    25. David VanNorman Wi says:

      Again I am to subsidize someone this time to buy a car. Did I not just subsidize the car company the insurance companies and banks an someone to buy a house. It's no wonder I don't have money to fix my own cars ansd truck. I'am getting tired of this type of stuff.

    26. Jerry from Chicago says:

      I have a better idea. Let all those who think that bail-outs, subsidies, amnesty for illegal aliens and national health care are the right things to do, submit their names, addresses and Social Security numbers to the IRS. Let's let these people pay the tax bill for all of these give aways.

      Let the rest of us alone. Stay out of our pockets and our lives.

    27. Bobbie Jay says:

      TO THE INDOCTRINATED IT'S WORKING FINE. To those true Americans that can decipher the difference between truth and lies, POSITIVE INTENT AND CORRUPTION, know this IS ONE CORRUPT WAY TO CRIPPLE OUR COUNTRY!

    28. Pingback: MacroBlog » Cash For Clunkers Means Throwing Away Good Cars, Parts

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.