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Is This What Passes for Economic "Success" in the Obama Administration?

Posted By Conn Carroll On August 3, 2009 @ 4:12 pm In Economics | Comments Disabled

Celebrating the fact that his administration has blown through $1 billion in deficit spending on the “Cash for Clunkers” program in just one week, President Barack Obama said Friday [1]: “I’m happy to report that it has succeeded well beyond our expectations and all expectations.” And just what exactly has the “cash for clunkers” program succeeded at?

Cash for Clunkers Has Not Helped the Environment: Thanks to the inclusion of SUVs and small trucks in the program, you could, in theory [2], trade in a Hummer that got 14 mpg to get $3,500 for a brand new 18 mpg SUV. Not exactly a leap forward for the environment. Worse still, that Hummer and all the other clunkers then get shredded– thus destroying 200,000+ cars before their full use. Once you factor in all the pollution from manufacturing new cars [3] to replace the prematurely shredded cars, it is unlikely you’ll see any net reduction in carbon.

Cash for Clunkers Has Not Helped Consumers: New cars are not a consideration for many consumers. Many go straight to the used car market, especially in tough times. Taking 200,000+ cars off the road will reduce the supply of used cars. Economics 101 tells us that a decreased supply coupled with steady demand will lead to higher prices. Driving up the cost of older cars may be an intended consequence for policymakers to encourage people to buy new, but it’s a bad deal for consumers.

Not Stimulating the Economy: The Obama administration claims that Cash for Clunkers will stimulate the economy by increasing new car sales this year. But the CEO of Edmunds.com, a new and used car sales website,  notes [4] that the program will not increase yearly car sales totals: “The 200,000-plus deals the government was originally prepared to fund through the program’s Nov. 1 end date were about the ‘natural’ clunker trade-in rate. … We have crammed three to four months of normal activity into just a few days. What everyone fails to realize is that once this backlog is met, interest in the program will fade.”

Economists looking at Clash for Clunkers are having New Deal deja vu. UC San Diego economics professor James Hamilton blogs [5]:

One of the more embarrassing features of the New Deal was the Agricultural Adjustment Act of 1933, which paid farmers to slaughter livestock and plow up good crops, as if destroying useful goods could somehow make the nation wealthier. And yet here we are again, with the cash for clunkers program insisting that working vehicles must be junked to qualify for the subsidy.

The only thing Cash for Clunkers has succeeded in is wasting $1 billion of tax payer money in record time. No wonder Obama has declared it a success “well beyond our expectations.”


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/08/03/is-this-what-passes-for-economic-success-in-the-obama-administration/

URLs in this post:

[1] said Friday: http://www.cbsnews.com/stories/2009/07/31/eveningnews/main5202611.shtml?tag=cbsnewsTwoColUpperPromoArea

[2] in theory: http://blogs.tnr.com/tnr/blogs/environmentandenergy/archive/2009/07/31/cash-for-clunkers-goes-haywire.aspx

[3] pollution from manufacturing new cars: http://www.guardian.co.uk/money/2006/feb/28/ethicalmoney.leohickmanonethicalliving

[4] notes: http://online.wsj.com/article/SB10001424052970204619004574324350084909302.html#mod=rss_opinion_main

[5] blogs: http://www.econbrowser.com/archives/2009/08/cash_for_clunke.html

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