Cash for Clunkers, A Case Study in Why Obamanomics Will Fail

infographic-cash-for-clunkers1From the Heritage Foundation

If you watch television you’ve seen the ads: “So bring in that old jalopy and get up to $4,500 towards the purchase of a new or select used vehicle. That’s right, get up to $4,500 for that old piece of junk, plus you keep the rebates. You have to hurry! Since funds are limited for this program it’s first come, first served!” Well, we’re about to find out just how limited those funds were. The Obama administration’s cash-for-clunkers program has been such a “success” that in just the first week of full implementation, the $1 billion originally allocated for the program is about to be exhausted already. Does this mean the program is over? We don’t know. Nobody does. And that is just the beginning of why this program is a perfect illustration of why Obamanomics will fail.

Does Nothing for Environment: Sens. Dianne Feinstein (D-CA) and Susan Collins (R-ME) are open to allocating more money for the program, but only if the rules are changed so that the program might actually do something for environment; because right now it is not. Edmunds.com auto analyst Jessica Caldwell explains why: “What you buy has to have an increase in fuel economy from what you traded in. But in some cases, that increase can be minimal. Owners of large pickup trucks like a Ford F150 only have to buy a replacement that increases efficiency by one mile per gallon. And they still get a $3,500 rebate. The environmental impact is negligible and the impact on national fuel demand and consumption is very small. The only real benefit in a like-for-like swap can be improved emissions standards on newer vehicles. Rather than discourage those people, they included them in this program.” Caldwell didn’t even mention the pollution costs of actually building a new car and the disposal of the old car, rather than just the pollution caused by driving the vehicle.

Hurts Working Americans: The federal government’s push to help auto makers has unintended consequences which will hut many lower-income Americans. Economist, Freakonomics author and New York Times blogger Steven Levitt writes: “People who drive clunkers are generally not in the market for new cars. Presumably their replacement car will be a used car. The increased demand for used cars will lead to higher prices for used cars.” Driving up the cost of older cars may be an intended consequence for policymakers to encourage people to buy new, but it’s a bad deal for consumers.

Read the rest at the Heritage Foundation.

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