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CASH FOR CLUNKERS is sweeping the nation. It is a huge government success story. The pundits like Larry Kudlow are ecstatic. It will single-handedly bring us out of this nasty little downturn. Socialism leads to prosperity. All hail comrade Obama. The governor of Michigan says they deserve the benefits. Democrats are so convinced of its phenomenal succuss, they are throwing another $2 billion into the pot. Let's step back and assess the facts:

  • Congress passes the bill on June 18, 2009 allocating $1 billion to get 250,000 cars off the road. Program length is from 7/1 to 11/1.
  • Due to normal government efficiency the program goes live on July 26, only 4 weeks late. 
  • The program runs out of money in 4 days. Dealers are swamped with government paperwork. Used cars are piled up on dealer lots waiting to be destroyed.
  • We have only pushed future demand into the present. We've created no new economic activity.  
  • Let's try to figure out the economic impact of this "successful" program:
  1. From the moment it was passed, who in their right mind would go out and buy a new car before the program launched? So, new car sales were further depressed from June 18 through July 25. My guess is that there were at least 250,000 less sales during those 5 weeks. So, we essentially transferred $1 billion from taxpayers to the government owned car makers for cars that would have been purchased anyway.
  2. By scrapping 750,000 used cars we will decrease the supply of used cars on the market. This will increase the prices of all used cars resulting in higher costs for consumers.
  3. Since a new car will cost $20,000 and they are only getting a $4,500 rebate, the car buyer will take on $15,500 of new debt. This will increase consumer debt by $11.6 billion when consumers need to be reducing debt.
  4. All $3 billion of the money for this program is being borrowed. It will never be repaid, as we already owe $11.6 trillion. If Treasury rates average 5% (I'm being EXTREMELY optimistic), the $3 billion cost will be $4.6 billion after 10 years, $7.6 billion after 20 years, and $12.3 billion after 30 years.

We are hanging a $12 billion anchor around the necks of our children and grandchildren in order to generate three weeks of increased car sales that would have happened anyway. There is no hope for the future of our country with the clueless "leaders" we have in Congress, cheered on by CNBC pundits.