The "Cash for Clunkers" Disaster

David Z on "no third solution" already made a post on this topic. Here's an article in USA Today. The Liberty Papers also wrote a post.

In the "Cash for Clunkers" program, you can trade in an old car and get a $4500 credit towards a new car. The old car must be fuel-inefficient and the new car must be fuel-efficient.

The $4500 is a cash credit. It can be used instead of a downpayment when purchasing a new car.

The program stared on July 1, but the government didn't start handling claims until the last week of July. Congress only allocated $1B towards this program. Swamped with claims, the $1B allocated was used up in only a day or two. The program was supposed to last until November 1, 2009.

Starting July 1, car dealers had been offering customers the $4500 rebate. The car dealers had queued up the paperwork, and immediately submitted it as soon as the program started.

When Chrysler and GM declared bankruptcy, some dealers were forced to close. The "Cash for Clunkers" program didn't help the dealers who were forced to close. If you were a car dealer and had your franchise revoked, Chrysler and GM didn't even offer to buy back the surplus cars in your inventory! That forced the soon-to-be-ex-dealers to sell their cars at a discount. Once their dealership franchise was revoked, they couldn't sell the cars as new, with factory rebates and corporate-guaranteed warranties. The "Cash for Clunkers" program didn't start until after these dealers were forced to close.

The "Cash for Clunkers" program is entirely corporate welfare. It is a massive State subsidy for car manufacturers.

Another interesting point is the requirement that the old car be scrapped. That makes this a literal "broken car window" fallacy.

You might think "Hooray! The State gave me $4500!" However, that is merely a partial return of stolen property. The $4500 rebate check is still far less than the government steals from you via taxes. Also, the $4500 comes with strings attached. You must use this towards the purchase of a new car.

The rebate program was funded via deficit spending. $1B of brand new money was printed to finance "Cash for Clunkers". This means that everyone else pays the cost via inflation.

When the government prints new money and mails everyone a check, no new wealth is created. The net effect is State distortion of the market. In this case, there was corporate welfare for car manufacturers and new car salesmen.

I don't own a car. I have some savings. My savings lose their value to inflation, to finance the "Cash for Clunkers" program. In effect, government bureaucrats stole from me and gave the proceeds to car manufacturers and people who bought a new car.

The $1B was spent almost immediately. The mainstream media fnord is "This isn't fair! Congress should allocate more than $1B for 'Cash for Clunkers'!" The net effect is that the car manufacturing industry will receive an even greater State subsidy.

The "Cash for Clunkers" program is entirely corporate welfare. As usual, I favor bad laws, because that accelerates the coming complete collapse. The only way to protect your savings from theft by inflation is to buy physical gold and silver.