Tuesday, August 4, 2009

Cash for Clunkers: Repeating immoral and idiotic Great Depression history

This entire Cash for Clunkers debacle needs to be dressed down for the immoral idiocy that it is, so here goes. Bear in mind that I'm no economist, mostly just a person who feels like he is observing the obvious consequences of a bad idea. The facts I've gathered have not been gathered through in-depth research, but from the layman's avenues of reading a bit on the web and in newspapers and hearing a bit on the radio. Hopefully someone will kindly correct me if I get something factually incorrect.

The Good - in no particular order (as spouted by the proponents of the program):
  1. This will 'stimulate' the economy because it will result in more people purchasing new vehicles than would otherwise be doing so.
  2. This is good for the environment because vehicles that get somewhere in the 16-18 MPG range will be replaced by vehicles that get somewhere in the 20-24 MPG range.

The Bad - in no particular order (as seems obvious to me):
  1. Car dealers give somewhere close to blue book for a 'clunker' and in turn the government steals money from citizens so that they can then give the dealer that same blue book amount the dealer paid for the car. Seems self evidently wrong. There's no getting around the fact the government is stealing money from individuals to purchase clunkers... especially in the light of the fact that...
  2. ... the government is destroying the clunkers once they take possession of them. Destroying, as in, draining the oil from them and then starting them and letting them run until the engine blows. What the hell? In what kind of bizarro world do we live where being wasteful and squanderous like this is not viewed as wrong? Seems like not long ago being thrifty and resourceful was seen as a virtue (special note here to those of you who read this and don't buy into objective morality - in your model, we have no call to be disgusted with the current behavior or expectation for an embracing of the thrifty behavior). Seriously, replace 'cars' with some other commodity, such as 'grain' and see if it dawns on you how stupid, bizarre and wrong this is.
  3. Because the government is simply destroying all these 'clunkers', this means there will be less inexpensive used vehicles on the market for folks who either can't afford brand new vehicles or who choose to purchase inexpensive used vehicles and do other things they see as more important with their money. Note that this must also mean - assuming that for every clunker destroyed a brand new car is in the market place - that the average price of all vehicles will be going up (number of inexpensive cars decreases by X and number of expensive cars increases by X, I don't see how it could work any other way).
  4. Related to 3. The government is implicitly encouraging irresponsible behavior in the citizens in that, in general, citizens are being encouraged to acquire large loans for expensive cars as opposed to either acquiring smaller loans for inexpensive cars or simply saving enough money to pay cash for an inexpensive car. Again we run into the objective morality problem here. It's not a problem for me so much, as my external source of objective morality makes it quite clear that obtaining debt, especially unnecessary debt, is not a good thing.
  5. Related to 4. Not only are they implicitly encouraging the type of behavior described in 4, but this is the EXACT BEHAVIOR that got the economy into this mess. People getting money too cheaply and easily to spend on crap they can't afford.
  6. Related to 5. Umm... what percentage of people who traded their 'clunker' for a new car will be defaulting on the new car loan in 6-12 months time. My bet is that the percentage will be higher than the average. At this time, that category of people will have their new car repossessed, and their clunker will be gone, so they will either have to go carless or purchase another vehicle from a pool that no longer includes as many inexpensive options (see item 3).
  7. Related to 1. The government simply does not have the money to do this. By 'not have the money' I mean they are already running a huge deficit and they can't find foreign entities interested in financing their expenditures as it is. The only possible way to pay for this joke at this point then would be to either increase tax revenue by raising taxes or to print more dollars.
  8. Rarely will you see me squawking about the government missing an opportunity for tax revenue, but due to the sheer contradictory nature of one aspect of the whole plan, I feel obligated to mention it. The government is both A) purchasing clunkers from dealers (as mentioned in 1) and B) giving a $3500-$4500 tax break to any person who participates in the program. Is this contradiction not bizarre to anyone else? They're simultaneously spending money and ensuring that they receive less tax revenue because of the tax breaks. (One opposing factor to this is the likely bump in tax revenue from the sales tax harvested from the sale of all these vehicles. I'm skeptical that this bump makes up for the loss incurred because of A and B, but would love to see the math if someone has done it.)
  9. Regarding 'the Good', #1. This will only 'stimulate' in the same sense that steroids stimulate a person's body. It works in the short term to cause muscle gain (increased sales of vehicles) but in the long term causes issues - as listed in items 1-8. People need to quit thinking of the word 'stimulate' when used in an economic context as something that's undeniably and necessarily positive.
  10. Regarding 'the Good', #2. So, better for the environment huh? That's quite an assertion. Given the light speed with which crappy legislation travels through Congress these days, I'm fairly sure nobody did the math to see what was better for the environment... keeping the 'clunker' on the road for another 5-10 years and NOT using energy to manufacture the new vehicle vs. destroying the clunker and using the energy to manufacture the new vehicle.

That's what I thought of off the top of my head. I'm left wondering if the government is actually this stupid or is willfully evil and doing what it does for very good and calculated reasons.

Another thing I'd like to address is people who take the position that goes something like "Well, I disagree with it and don't think the government should be offering this program, but since they are, I may as well take advantage of it, it's my money they're using to pay for the program anyway." People who take this position often consider themselves to be conservative and maybe even libertarianish. Let me say now that if you are this person, then you are wrong, and your conservative or libertarian (or classically liberal, I don't even know what word to use these days... I mean not socialist, not marxist, not fascist) principles are a joke and you don't have the gumption to actually let them affect your behavior, but instead you're willing to set them aside for selfish gain.

Last but not least, some links to other interesting blogs on the same topic.

For more fancy economic language like:

Once it hits the limits of demand, the shifting back of the curve to its place on the supply curve will be nasty because none of those new cars will need replacement as soon as the clunkers would have. There are some differences of course. Roosevelt was trying to reduce supply, whereas this program is just a means of consuming tomorrow's demand today.

Also, what I thought to be a very interesting anecdote from a commenter about his grandparents experience during the Great Depression:
My grandparents had a little pig farm. Maybe... 50 hogs? Federal agents came by one day and killed every single hog, and confiscated the meat. Looking to drive up the cost of pork... helping the big farms... screwing the poor folks that were trying to raise their own meat.

No one remembers this stuff anymore.

Back in the 1930s, the story goes that President Roosevelt was accused of being “dumber than a jackass” because the Feds were paying farmers to tear up their fields and some of their plow animals resisted it, having been trained over many years, sometimes by whip, not to destroy plants. Today, I guess one could say that President Obama cares less about the poor than a used-car salesman does.


Demian L. Neidetcher said...

You're spot on but I disagree with respect to folks that use government programs and still disagree with big government. They already have your money, if you don't get it back whenever you can, especially when it's explicitly outlined in the law you're a sucker.

Bryan said...

Could 'big government' exist if every single person eligible to take advantage of any particular program simply refused to participate and involve themselves?

Demian L. Neidetcher said...

Talk about swimming up-stream in relation to the natural tendency of humanity. Good luck with that. That approach is somewhere between lighting a candle and saying a prayer in terms of effectiveness.

Bryan said...

I was talking about what's right and wrong, not about what's effective.