My son just bought his first car this week at age sixteen. Not sixteen years; he’s only sixteen months. Yet Congress just forced my toddler to buy a car this week, a car that he’ll never even drive.
That’s what “Cash for Clunkers” does; it forces our kids to buy cars. Are we now so blind and shortsighted that we don’t even understand what we’re doing anymore with this massive government spending, incurring intergenerational debt?
This blindness is not the only thing wrong with this problem. For one thing, it’s astoundingly bad economic policy to give incentives to destroy useful assets. These “clunkers” are perfectly usable cars. In tough times people should hold on to those cars to get all the useful life out of them that they can. It’s great that they have a serviceable car for which they don’t owe monthly payments.
For another thing, this hurts lower-income people, who own most of these “clunkers.” It encourages them to get rid of a car they don’t make payments on in exchange for a more expensive car for which they might have payments (because the trade-in only covers part of the purchase price of these new cars). By destroying these older cars, we’re also destroying the supply of spare parts for repair shops to service those models over the coming years, making it more expensive to repair these cars down the road.
This hearkens back to the Great Depression. Crop prices plummeted and many farmers couldn’t make a profit. So the government ordered crops destroyed and paid farmers to let fields lie fallow, all to constrict supply and drive up prices.
Of course, the reality was that people across the country were starving and desperate for food. Analysts look back on those government actions in the 1930s with the same scorn that doctors look back on bleeding patients with leeches to “heal” them. From a modern economic standpoint, those crop policies were nothing short of barbaric.
Yet here we are doing the exact same thing with used cars. It’s disturbing to realize that the current federal government knows nothing of what we’ve learned about economics in the past seventy years.