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Posted by on Aug 4, 2009 in At TMV, Economy, Media, Politics, Society | 4 comments

Clunker Program Toys With Our Weakness

I was watching video clips of Republican congressmen criticizing the ever-popular “cars for clunkers” program and it got me thinking. Here is one scenario: If there is anything Americans love most, it’s their cars and bargaining a good deal buying one.

The government’s auto stimulus program plays right into that emotional bonding by offering up to $4,500 credit for trading in their old gas-guzzling vehicles which are destroyed forever and replaced by higher-mileage and more efficient new models.

Jonah Goldberg, a columnist for The Los Angeles Times, calls it a win-win-win-win deal with unintended consequences. I agree but for different reasons.

Goldberg argues correctly that poorer people with shaky credit are stuck with their old cars. When they go to trade in their heap for a newer used model the price of that clunker has risen because so many have been taken off the highways.

My question is what happens when the government dole runs out. Even if the Senate this week joins the House bill adding $2 billion to the program, all the experts say that money will be drained by September if not sooner.

At least it was fun while it lasted. I fear all the program is doing is planting a green shoot in the ground only to see it whither. Consumers will back away in hordes, returning auto dealership showrooms to funeral parlors on a dark day. All that was gained was fizzled and the automobile manufacturers which began increasing production will again turn off the spigot.

In other words, the government played mind games with our emotional weaknesses for naught. I hope I’m wrong because what happened with the first burst of $1 billion into the market worked wonders. Here are some of the numbers:

— By this morning 157,000 transactions worth $664 million were recorded by the National Traffic Safety Administration which runs the program. Eighty-three percent of the vehicles traded in were trucks or SUVs, while 60% of the vehicles purchased were passengers cars, for an average increase in fuel efficiency of 61%.

— Another $2 billion would generate the sale of about 500,000 more vehicles. Ford said its sales rose 2.4 % in July from the same month last year, its first year-over-year increase since November 2007. General Motors Co., Chrysler Group LLC and Ford Motor Co. accounted for 47% of the new vehicles purchased.

The LAT’s Goldberg contends most of the buyers cashing in their clunkers were waiting all along to take advantage of the free-money program and suggests when that source dries up so does the car buying binge.

Indeed, Washington is agog with its own success, stunned to discover that Americans like getting free money. That this news shocked so many on both the right and left shows how thick the Beltway bubble really is.

Goldberg than says what’s really troubling him:

Besides, maybe some people would be smarter to buy a savings bond or max-out their kid’s college fund or — here’s a crazy thought — buy health insurance. But instead they’ve been seduced into spending the equivalent of their (dollars) on a car they don’t really need…

Under the government’s program, my tax dollars are being diverted to people with cheap cars so they can buy expensive ones. That’s just really inefficient wealth distribution, not wealth creation.