Friday, August 7, 2009

Cash for Clunkers Hurts Poor, Sick, Unemployed, Consumer, Saver, Taxpayer, Environment, Charities, Recovery, Public Safety: Obama Waterboards Economy

Cash for Clunkers (C4C, Car Allowance Rebate System (CARS)) is anti-poor, anti-recovery, anti-safety, anti-consumer, anti-saver, anti-taxpayer, anti-business, anti-environmental, anti-health, anti-charities, anti-productivity, and anti-economics.

  • Anti-Recovery: C4C is classic wealth destruction. Its Carthaginian scorched-earth policy demands that working engines must be destroyed. Destroy the engine, destroy the transmission, shred and melt the car, and maybe even airbrsuh your car out of any of your family photos. The C4C insanity of literally destroying wealth (throwing away all the work someone did to make that durable good)--intentionally making us poorer (during a recession no less)--has been known for centuries in economics as Frederic Bastiat's Broken Window Fallacy (the misguided idea that a broken window stimulates the economy because you have to buy a window all over again). Maybe your Congressperson will smash your windows and slash your tires to stimulate the window and tire industries. Why doesn't Obama just tell everyone to riot through the streets so we can buy new stuff to replace all the perfectly good stuff we just destroyed?
  • Anti-Poor: C4C is a regressive tax on the poor to subsidize the affluent. C4C requires the death-sentenced cars to have been titled, registered, insured, younger than 25 years old, and roadworthy by definition (as deemed by almighty government's registration of the vehicle). Poor, unemployed, or otherwise struggling Americans need affordable cars and depend on hand-me-downs but C4C makes cars unaffordable by destroying the hand-me-downs. Reducing the supply of used cars and therefore raising prices of the remaining ones is like a regressive tax increase on the poor so Biff and Bambi can preen green in their shiny new hybrid.
  • Anti-Safety; C4C's title/registration/insurance/age requirements guarantee that it destroys moderately used, roadworthy cars (UPDATE: C4C destroyed younger cars but did not accept older cars), so there will be more pressure to put even older cars back on the road as desperate poor people try to survive economically by taking yard cars off cinder blocks and putting even worse clunkers back on the road.
  • Anti-Consumer: Subsidies for any product ultimately benefit the seller, not the buyer. Subsidies tend to inflate prices (college, etc.). If C4C's $4k/car ($3.5k-$4.5k) spending makes a sale that would not have occurred otherwise, that means that the car should cost $4k less but C4C prevents the price decline for the consumer and instead the car dealer just pocketed an extra $4k from the taxpayer, assuming the dealer did not raise the price $4k before giving a $4k discount and therefore pocketing $8k more than the car is worth, and assuming no dealer abuse or fraud such as a dealer making the buyer liable for rejected claims or quoting a lower credit to the buyer but filing a larger credit with the government (it is not as if the government/Fed cares about accounting (The greatest financial scandals and swindles are government-related accounting; Fed is to transparency as lead is to x-rays; SEC rewards Madoff); the government only cares about churning taxable transactions). (UPDATE: C4C raises prices on consumers.)
  • Anti-Taxpayer: C4C tricks the car buyers into paying higher taxes (state sales tax, local property tax) and involuntarily raises taxes on taxpayers (you pay the interest on the federal deficit--you will be paying for 1 month of C4C for decades to come).
  • Anti-Saver: C4C forces you to borrow money (adding $1-$3 Billion to the federal deficit) to pay people to buy something they do not need (the policy presupposes that the buyer was not going to buy without the subsidy) and in many cases to finance the unnecessary consumption with more personal debt (auto loan). C4C forces you to go into debt to pay people to go into debt, during a recession, with people losing their jobs, income, and ability to pay the debt.
  • Anti-Environment: (a) Destruction is the opposite of conservation so C4C's car destruction is inherently anti-environmental. (b) There is pollution in initial production of the trade-in (production now wasted, causing unecessary pollution by raising the pollution-per-use cost), pollution in destruction of the trade-in (melting the metals uses enough megawattage to power a town), pollution in dumping the plastics and other non-metals in landfills, pollution in the production of the new car (C4C's intent is a jobs program to maintain/worsen the oversupply problem, replacing existing cars sold off the lots with brand new production, which means brand new pollution--UPDATE: Spinning our wheels: Instead of using C4C to deplete the oversupply, the Department of Transportation (DOT) boasted that it will (pollute more to) replenish the oversupply and maintain the costly glut, "[C4C w]ill sustain the increase in GDP in the fourth quarter because of increased auto production to replace depleted inventories," DOT 133-09, 8/26/09), and pollution of people driving to an extra job or extra workdays to pay for the extra consumption of the unnecessary new car. (c) The mileage benefit is only the marginal mpg benefit over marginal time period of demand pull-forward (eg, if you buy a car 5mpg better and a year earlier than you would have, the only marginal emmissions benefit is, if 12k miles/yr, traded from a 18mpg car to a 23 mpg car, at $2.50/gal gasoline, only $300 less gas used. Many buyers will finance, in which case add maybe 50% to the sticker price to include finance charges, and people might be going an extra $20k in debt during a recession to to save $300. (d) However, even the $300 benefit evaporates if people drive the new car more miles than they would have driven the old car. (e) Further, since this year's new car is next year's clunker, and if you are locking into a 25mpg car now when without C4C you would have bought next year's 30mpg car (Congress has grand plans for higher CAFE mileage standards but C4C is paying people to buy cars that Congressional leaders have declared to have been built under faulty mileage standards), C4C might be increasing emissions pollution by inducing people to buy this year instead of next year. (UPDATES: C4C was environmental waste: "New UC Davis estimates say the federal government's "Cash for Clunkers" program is paying at least 10 times the "sticker price" to reduce emissions of the greenhouse gas carbon dioxide."; DOT cooked the books to hide SUV sales and make C4C look green?)
  • Anti-Charities: C4C is killing charities which rely on donated vehicles, charities which already suffered donation declines during the redession.
  • Anti-Health: C4C is stealing money from cancer research. The United Breast Cancer Foundation (UBCF)'s fund-raising appeal to donate cars, "Feel GREAT for supporting breast cancer patients and their families!" and $1k of grocery coupons, is outbid by Congress' profligate $4k offer.
  • Anti-Small Business: C4C is killing used car dealers by literally destroying their product (used cars) and stealing their sales (giving them to new car dealers). Germany's clunker policy exposed this consequence but Congress ignored the German lesson and unleashed C4C on America's used car dealers anyway. C4C takes from Peter to give to Paul, transfering sales instead of creating sales (not only used cars to new cars but money spent on cars is not spent on computers, ballgames, etc.). To the extent that C4C does create extra sales now in the present, it does so by stealing sales from the past (people who waited for the C4C) or from the future (people who bought earlier than originally planned). Pulling demand forward (stealing sales from the future) takes from Future Peter to give to Present Peter (imagine your sci-fi "future you" asking why you stole from him/her), artificially inflating sales/income now at the expense of lowering sales/income in the future. Pundits might say we need the extra income now but we will not need it later after recovery. We have seen that lie before: The whole debt bubble was (is) pulling demand forward (borrowing from the future) even during the so-called boom.
  • Anti-Economics: C4C "stimulus" is an accounting shell game. The stimulus is largely illusory and horribly inefficient when you measure true cost against true marginal sales. (a) Subsidies often waste most of their money by paying people who would have done the action anyway (happens with subsidies for college, housing, health, etc.). Many people who took the C4C subsidy would have bought a car then anyway and even pulling demand forward (taking sales from the future) is paying people who would have bought a new car anyway in the near future. (b) The hyped surge in a week or month is largely no stimulus at all in the medium term. (c) If there are any true extra sales at all (marginal sales that people would not have done without the subsidy), the cost per marginal sale can be grossly inefficient because you divide the small number of real extra sales (marginal sales) into the total cost of the program (which should include not only the $1-3B but also the finance costs of deficit-spending, any extra used-car dealerships driven into bankruptcy by C4C, and any extra cancer deaths caused by C4C). (UPDATE: CR estimated marginal cost at more than $7k per car but even that ignores total costs such as the finance charges and opportunity costs that I mentioned.)
  • Anti-Productivity: (UPDATED) C4C kills American productivity with 13-page application forms dreamt up by government drones, computers/websites crashing at the start of the program, computers/websites crashing at the end of the program, dealers claiming that the government is rejecting 80% of applications, and Congressman Joe Sestak (D-PA) claiming that the government is not paying 98% of applications. The C4C boondoggle makes dropping money out of helicopters seem sober and efficient in comparison. C4C is a classic example of malinvestment and misdirection of valuable, time, labor, and money that both brought us to recession and will keep us in recession by rotting real productivity (despite the illusion of GDP $ from make-work activity).
Buying a car every 3 years and a house every 7 seven years is wasteful and unsustainable. The economy is trying to save you and warn you before it is too late (via market signals collectively called a "recession") but Congress and Obama are trying to prevent you from receiving the warning and have captured the economy and are now waterboarding the economy (drowning it in debt) until it recants.

By the way, "the economy" includes you, and Congress and Obama will waterboard you until you submit to your debt slavery.


W.C. Varones said...

Dude you rock. Found your blog from Jr. Deputy Accountant and I'm adding you to my blogroll.

Cars4Charities said...

Excellent analysis! Before c4c was passed, charities that operate car donation programs ask that the c4c cars go to them instead of the scrap yard. Cars that were not worth ficing would be scrapped. However those in good shape would be repaired and either sold or given to the poor. This would have eliminated many of the negatives of cash for clunkers.

J at IHB and HFF said...

W.C. Varones, thank you and thank Jr. Deputy Accountant. I like your blog.

Cars4Charities, thank you for the inside view from charities.

I added more links and details to the article.

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