THE DOWNSIDE TO CASH FOR CLUNKERS
We’ve previously mentioned our disgust with the cash for clunkers program. In essence, the government is borrowing money to help consumers borrow money to purchase an asset they likely have no need for in this tough economic environment. I mean let’s be honest, cars aren’t exactly the one thing people are looking to purchase when times get tough. And Lord knows the last thing this government or its consumers need right now is more debt. More importantly, you have to wonder how much this program will actually detract from future spending.
With stagnant wages, record job losses and near 10% unemployment just how much extra cash do consumers have to be throwing around? While it’s great that the cash for clunkers program is going to add 1.5% to GDP in the next quarter it’s truly unfortunate that this program is likely to take away from other segments of consumer spending. If you’re the consumer taking out a new loan to purchase a $20,000 car you’re not exactly planning your next big vacation right away or your next spending spree at the local mall. It will be interesting to see just how negatively this program impacts the retail spending habits in the coming quarters. If recent spending data is any signal it’s likely that the weak consumer is here to stay and Washington isn’t helping. But hey, they’ll sure promote that next GDP figure as a sign of recovery when it comes….
it is just another dose of taxpayer-sponsored(at gunpoint) Viagra…
I’m always amazed at the behavior of the human herd in the U.S. when you dangle a bit of “free money” in their face. It’s borderline abuse on the impulse shopping crowd. These people can’t control themselves when it comes to buying things, and here comes the Government encouraging more reckless debt.
Glad my tax money is being used to buy other people some cars. Great. As to the environmental argument here: hogwash. It’s a drop of pee in the ocean. If they really wanted to provide a public subsidy for the environment just make taking mass transit free. People would stop driving cars altogether if the alternative was either absurdly cheap or outright free.
Hey, LOVE this site. You’ve taught me a lot.
I disagree with your analysis on cash for the cash for clunkers program, though. This is an issue that realistically (meaning, economically) could come down either way – although I think it’s clearly pointing in a positive. Only hindsight is truly going to tell us how well this program worked; but right now, it seems like some people are just looking for ANYTHING to shoot this thing down.
You’re getting too much into politics and compromising the trust you have built by weighing in.
It’s just one more example of the government’s endless forays into trying to manage the economy and encourage certain growth and spending according to their political whims. Just as with all the housing tax benefits and incentives, it only increases the misallocation of capital to sectors that are already overbuilt, thus leading to further excesses and bubbles. The unintended consequences just build on each other and wreak havoc on the markets.
But they’ll never quit, as everyone thinks they have the best idea for what should be done, instead of leaving it to individuals to buy what they need, when they need it, as they can afford it. What a concept.