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Wednesday, March 30, 2011

Cash for Clunkers 2: The Return of a Failure

According to an Article in the Washington Times, the Government wants to bring back the failed concept of cash for clunkers. Surprised?:

"Is the United States really prepared to deal with another tax payer paid for deal that will only benefit the now government owned GM? After all, did Cash for Clunkers part one really work out for the tax payers and auto dealers? Washington, D.C. based organization Americans for Tax Reform didn't think so and wrote in late October of 2009:

The program began on July 24th with a budget of $1 billion and by July 30th they were out of money. Giving people “free” money to buy cars is definitely popular. Congress then allocated another $2 billion that lasted almost until the end of August. That’s right, $3 billion in under a month. The program didn’t help the economy or auto industry. Despite a bump in the 3rd quarter to GDP and auto sales, consumer spending dropped 0.5% in September and the vehicle output bump was artificial and unsustainable, meaning it will drop off considerably in the next quarter as the market stabilizes to its real level. As Nick Gillespie and Veronique de Rugy pointed out today over at Reason, even the reported GDP bump is misleading, because is includes government spending. So if government spending increases it will increase the GDP, but that doesn’t mean any more was produced.

There are also the unseen costs of this program. By encouraging people to junk older vehicles, they lowered the supply of cheap used cars. When you lower supply and keep demand stable, the price goes up. With fewer used cars on the market, the prices for remaining used cars increases. This will make it more difficult for younger drivers or low income drivers to buy cars to get to work or school. (A video by Congressman Ron Paul further explains how it hurts the poor here.) At least the wealthy got a handout to buy their brand new cars though right?

Unfortunately, when ideas turn bad, it does not preclude another similar bad idea to be proposed later on."

If you remember correctly many dealers had a hard time getting paid for the first cash for clunkers program. You think this one will be any better?


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