I Can Say This Much for Cash for Clunkers
It was short-lived, and it could have been worse. Yes, I thought it was a bad program, but I wouldn’t go so far as Cato’s Chris Edwards to say it was the “dumbest program ever.” Better to give away something for next to nothing than to give away something for countless calculations, changes in behavior, and misplaced investments. (If you’d like an example of such a program, look at the federal tax code!)
In some ways, the idea behind Cash for Clunkers was similar to the rationale for sales tax holidays. Both are intended to spur economic activity by giving consumers an incentive to spend on targeted items. Instead, each diverts spending from better uses, without generating new wealth.
To learn more about Cash for Clunkers, check out the entire post by Chris Edwards. For a mathematical analysis of the program’s effect on carbon emissions, see Matthew Kahn’s August 12 post.
Although I agree that sales tax holidays and Cash for Clunkers are effective programs for getting consumers to spend on targeted items, I think the similarities stop there. Programs like Cash for Clunkers are subsidies and they represent a cost to the general fund. Sales tax holidays, however, do not need to be funded by taxpayers; the government simply takes in no tax revenue.
In addition to diverting wealth from other uses, these programs steal from future sales that would have occurred anyway. Although the program spurred economic activity in the short term, it is unlikely that this activity will continue into the near future.
Related to this idea, Harvard Business recently called Cash for Clunkers an economic, environmental, and administrative failure for American taxpayers. http://blogs.harvardbusiness.org/quelch/2009/08/how_cash_for_clunkers_failed_a.html.
Comment by Christine Harbin — August 26, 2009 @ 11:03 a.m.