None of this happened, unfortunately, because the Fed decided to prop up bankrupt investment banks by taking “toxic” assets off their books in exchange for dollar reserves that Ben Bernanke created out of thin air. At the same time, the federal government began its assault on the private sector, and began taking over (or threatening) car companies, banks, energy markets, and now health care.
It is because of government meddling that this recession has been so long and so painful. It is no coincidence that the two periods of the biggest power grabs in Washington—the 1930s and right now—coincided with the worst economies in U.S. history. Having the feds borrow a few more billion, to pay people to buy cars, does nothing to alleviate the underlying problems. The economy can’t return to normal when every business decision needs to consider what politicians might announce next week.
The ultimate irony is that the cash-for-clunkers program isn’t even good from an environmental viewpoint. Its proponents naively assume that someone who trades in, say, a 10 mpg clunker for a spiffy 35 mpg vehicle are thereby avoiding a tremendous volume of gasoline consumption. But what these fans of the program overlook is that most people will drive more miles in their new cars. For example, someone might trade in a rusty pickup that’s been sitting in the garage for years.
Some leading environmental advocates agree. “As a carbon dioxide policy, this is a terribly wasteful thing to do,” according to Henry Jacoby, co-director of the Joint Program on the Science and Policy of Global Change at MIT. “The amount of carbon you are saving per federal expenditure is very, very small.”
The cash-for-clunkers plan is a giant waste of tax dollars. It further distorts the economy, making industry even more vulnerable to the changing whims of D.C. politicians. To add insult to injury, the alleged environmental benefits are minimal. The only virtue of the program is that it steers billions of dollars into the pockets of those with friends in high places.