Cash-for-Clunkers: Another Inane Economic Policy

I'll forgive you if you haven't seen the movie Idiocracy. I fell asleep three times watching it, but laughed several times in between. The take away is that the world becomes increasingly stupid to the point that everything is manufactured by one company and (spoiler alert) no crops can grow because they are watered with a Gatorade type drink.

Why do I bring this up? I believe that Cash-for-Clunkers is "Idiocranomics". Cumberland Advisors does a great job of explaining some of the really dumb elements and why this program is not simply a waste of money, but a perpetual waste of money to the tune of at least $150 million a year in ongoing interest (assuming the senate passes the second $2 billion).

The senate is set to pass an additional $2 billion for this program this week, bringing the total we will hand out to $3 billion dollars. The top incentive is $4,500 (the lowest is $3,500). What is interesting is that if you divide $3 billion by $4,500 you get the following number: 666,666 potential cars that qualify...that's not a nice number (remember the stock market hit a low 666 this year on the S&P 500).

My point is that economics has become a race to the bottom among politicians and among....economists. If $3 billion is good, why not $10 billion - hell, why not $100 billion?

Last year a big stimulus package was passed by congress and the Bush administration and I commented about how stupid it was - the stimulus had zero effect. This program is further proof of the dumbing down of economics. I don't claim to be an expert economist or even an economist (as if that would be a claim to royalty), but I do know that I'm not dumb enough to fall for the notion that Cash-for-Clunkers is a good policy for the economy - it's just another in what has been a long line of "idiocraconomics" policies.

Latte anyone?

Comments

[john mullinax:]

Your link says that the Cash for Clunkers program is estimated to raise Q3 Real GDP from 1.3% to 2.0%. Not a perfect program, but if the analysis you cite is true it sounds like a hugely effective program. Bottom line: 0.7% Real GDP growth from only $3b investment? Sound's great!

And it's good for the environment, too? If only all the federal programs worked this well.

Aug 06 09:04 AM

[Perry B:]

mulinax I can agree with you in part. But dont you think we should be moving ahead in our technology of inventing cars people want to buy, instead of the stale bread we are being served? They have to give cars away because no one wants them. And the feds have to protect thier cronies. Economic stimulas should come in the way of Research and developement for autos which are huge. That in my opinion is better serving the majority ofAmerican taxpayer. Creating high paying jobs ( Which stimulate the economy) ending with consumers buying this new technology. Increasing more R and D with lower costs and still giveing high paying jobs because people want and will buy better technology. Look at Apple computers. Look at toyota prius. Look at Reagans star wars program without that program we would not have GPS and many technological advances. That we as consumers now take for granted. the list goes on, that the american consumer is begging for new advanced technology in every aspect of their daily lifes. The " build a better mouse trap," is what made our country great. We are now just part jobbers for emerging nations. Building and getting bailed out selling junk no one really wants to buy.

Aug 06 10:33 AM

[467436:]

My major problem with this program is, if it is using U.S. tax payers $$ to fund the program in an effort to "stimulate" the ecomomy and put the currently unemployed back to work paying taxes and spending money to get this country moving forward again, why does a vehicle that has no American made content qualfy?
The Toyota Prius comes directly off a boat from Japan to the market, how is this helping stimulate the American economy?
If you want to use the "C for C" credit to buy a car, make it at least be one assembled in this country. Why spend my tax dollars to stimulate the Asian ecomomy?

Aug 06 10:52 AM

[Mad Hedge F...:]

Inane, expect that it works. So now we have euthanasia for cars. The Wall Street Journal tells us that a government condition of the Cash for Clunkers program (see my last report at www.madhedgefundtrader... ) is that clunker buyers total the engines by pouring sodium silicate into them. That way they can’t be resurrected like Frankenstein at the junkyard. What’s next? Free Viagra for the high mileage, new car buyers? There’s a certain poetic resonance there. Anything that works. In the meantime, the Republican Party is publicly slashing its wrists by trying to block an expansion of the most popular program since the end of the mandatory draft. Is Mc Cain trying to lose the election a second time? I think he is oblivious of the warm and fuzzy feelings the clunker clensing is generating, which is far more valuable than any direct economic impact. Don’t they have Ford dealers in Arizona? I never thought I’d run a car company chart again, but here is Ford in all its glory, up a mind boggling 65% since Cash for Clunkers started. Like virginity, confidence is very hard to recover, once it is lost.

Aug 06 11:07 AM

[Living Off ...:]

I just posted a good satire on this last night:
livingoffdividends.com.../

Aug 06 02:55 PM

[a. palmer jr.:]

I saw the movie you were speaking of and while I was watching it, it reminded me of the direction our country is headed in if we don't quit depending on government to do everything for us. The people in the movie are doing the same things our citizens are doing right now; watching tv while collecting food stamps and any other kind of free handouts they can find, without even considering finding a job (or a better one). I guess people in America are going to take some time adapting from a have to a have not nation.

Aug 06 09:50 PM

[TCK:]

I think the "C4C" program is a prototype for the new health care plan coming from Congress.

Young and productive ( ie, tax paying ) is good while the old is eliminated and prevented from draining the system.

Aug 07 05:07 AM

[User 470121:]

Think about this: When a carmaker wants to move inventory, they often offer "cash back" rebates to get people to shop showrooms.

So now that the US Government is officially a carmaker (they own a large chunk of General Motors) they offer rebates. Except unlike a rational business, the rebates are good for Toyotas, Hondas, Kias, whatever you want to buy.

Not only are they paying shoppers to buy from competitors, we taxpayers are paying people to buy Japanese.

So now we'll "tax the rich" so the middle class can get a better deal on a Honda.

Brilliant.

Aug 11 05:31 PM

[Geek of Nature:]

Even many conservatives now think this program was among the best stimulus efforts that could possibly have been enacted. The results beat the initial forecasts by a factor of 3 to 1, and the program was still going strong when the extra cash ran out. GM hired back some laid-off workers, at least for awhile, and expanded production. Dealerships that were on the verge of collapse have survived.

It's been a few weeks since this blog entry and most of the comments were posted. Looks like many of you couldn't accurately predict outcomes even just a few weeks out. I see many truly ignorant comments like the one directly above (most Hondas sold here are manufactured by Americans, and many Americans are shareholders of Honda, including me, but I guess you just think that's just another "liberal" exageration, right?).

So anyway, given all the above, you're going to have to tell me again: I should listen to your investment advice, why?

Tell ya what, I'll save you some time. Don't even bother.

Aug 25 01:56 PM