The editors of National Review note the destructive aspects of the cash-for-clunkers program in “Uncreative Destruction”. read it here.
If there is one absolute rule in economics it is that everything has a cost. What were ‘clunkers’ to the program were the kinds of cars poor people drove for years. Poor people do not buy new cars- even with a generous credit.
Removing these clunkers from the market will likely raise the price of used cars that the poorer rely on. We would also expect a decline in the number of used cars that are donated to charity. As far as stimulating the auto industry, it is a heroin like fix that will wear off; leaving empty showrooms when the program ends. By stimulating the purchase of new cars, the money spent is money not spent on new clothes, books, fishing gear, health food, gym memberships, blenders, dining out, cameras, computers, shoes, video games, vacations, body lotion, fountain pens, stainless grilles, wine, bathroom remodeling, cigars, lottery tickets, concerts, guitars….. I think you get the idea.
A dollar spent on new cars is a dollar not spent on something else. There is no stimulus. I repeat- “no stimulus”. In fact by destroying the old cars there is a net destructive effect on our economy.
This administration is committed to spending our way to prosperity and it simply doesn’t work. Prosperity comes from stimulating production, and almost every policy this administration pushes destroys production. Business people understand that the spending stimulus must end and they will be left with substantially higher taxes and the vast uncertainty of the cap and trade, health reform and strong pro union legislation. No one will invest in production in this environment except the crony capitalists lining the pockets of the Washington elite. And these capitalist whores generate very few jobs compared to the small business people who are on hold until some common sense is restored.