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Lotsa harm by doing good: Obama’s clunkers
July 31st, 2009, 1:33 pm · 29 Comments · posted by Mark Landsbaum
Let us count again the ways the Obama Administration makes things worse by trying to help. Case in point: Cash for Clunkers.
The Heritage Foundation itemizes just a few of the unintended painful consequences that this “help” from Washington results in:
1. It hurts working Americans by driving up the price of older cars by increasing demand. Econ 101.
2. It hurts charities, which have just been denied countless donations of clunkers from people who used to get tax write-offs for giving them.
3. It adds to the federal debt, but what’s an extra billion or so, eh?
4. It prompted car dealers to buy lots of expensive ads - before they got their dough from Washington - on the promise the program would run to Nov. 1. Then the money ran out even as clunker owners skipped in to the dealerships only to discover the program was on hold. All those expensive ads and dealers couldn’t close the sale.
5. It means we who aren’t buying cars are now subsidizing those who weren’t going to buy cars, but now will.
6. And now it’s going to require adding more to the national debt to cover the extra costs the government didn’t see coming. Oh, what’s another couple billion?
The part we think best underscores the futility and harm of Washington’s help was summed up by one auto dealer who told CBS News:
“If they can’t administer a program like this, I’d be a little concerned about my health insurance.”
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#7. Americans arent’ buying these cars so much as borrowing a lot of money in order to drive that new car off of the lot.
Not a big deal, though. Americans have a great sense of the credit world and manage it very well. They won’t default on those loans and the rest of us won’t end up paying for our neighbors’ new cars.
But, then again, we’re already paying for their houses.
*facepalm* I hate to say this…you have NO FREAKING IDEA how much, but…
You’re right.
People are buying new cars, getting back into debt, based on this rush for the “cash for clunkers” freebies.
Suzy Orman (who I think is absolutely great) did a fantastic bit about how the upside of this economic crisis might be that people would learn the pleasures of delayed gratification, instead of taking on debt for their whims and wants. She said that Americans have forgotten how to save and build to buy the things that they want and need, and that not only puts them into massive debt, but it also is creating a real unhappiness. People aren’t happy with their things that they are buying, because it comes too easily, and it feels very disposable.
I remember buying my first car, and saving for over year to buy it, because my parents firmly believed that it would be a disservice to me to buy me a car. It was ugly, and not a great car, but every time I drove it, I felt proud. We’re working so hard, but we aren’t enjoying the fruits of that work.
Everything is just “stuff”. We use it, toss it, buy the next one. Whatever happened to the pride of hard work, of earning things, and then taking care of them? I’m not that old, but I can see exactly what you are saying here. It’s draining our American spirit.
Very thought provoking, Mr. Landsbaum.
Suzy Orman and the rest of these financial gurus are frauds. For the longest time she was part of the ‘buy and hold’ ilk. She told people to stick their cash in an index fund (DOW, S&P 500, etc…) or mutual fund and forget about it. She claimed that the market has proven to go higher over time and this was a no-brainer. Look what happened. People lost 40% or more of their investment if they listened to her. It will take a decade to get back to DOW 14,000, if ever. Now you don’t hear Suzy Orman whisper ‘buy and hold’. Did a complete 180 degree flip-flop. Totally disingenuous. I ignore their advice. If I want financial advice these days I ask my barber.
Yes, but she was one of the few to admit that she was wrong. That’s rare, these days.
They also changed the rules in the middle of it all. Some cars that were eligible on week, became ineligible the very next day. There’s been a lot of confusion at the dealerships.
ML getting some credit from SSA. I’m checking wit hthe Weather Channel for the temp in H*ll. I’ll bet it’s near freezing.
*chuckle* I give credit where it is due.
Too bad it’s not reciprocal.
OK, let me see if I have this straight: a program designed to get older, more polluting cars traded in in exchange for new, less polluting cars - thereby reducing pollution emissions while simultaneously goosing moribund car sales - becomes so popular that it finds its funds committed to its statutory limit, forcing Confgress to go in on an emergency basis to add money - and this is an example of a failed government program???
Please, God, give us more failures like this.
Even the fenceposts are laughing at how dumb this view of the world is.
Let’s start with basic supply and demand. This program increases the number of older cars in dealer inventory. Yet Heritage Foundation (the fine fellows who brought you the Bush economic collapse) , with Mr. Landsbaum nodding doglike in the background,. claims that this increased inventory will be . . . more expensive?? Whoever they spoke to forgot the small detail that the rebates involved in this program are not available for you to just trade one clunker for another used car (the presumed “increased demand for used cars”), but only to purchase new, cleaner burning models. Don’t believe me? Check out the government site, which states, “Only purchase or lease of new vehicles qualify .”
Oops. Econ 101 indeed. Try remedial reading.
Then we get to the supposed damage to charities. How much damage, you ask? Who knows, neither Mr. Landsbaum nor the Heritage Foundation folks bothered to ask or make any attempt to quantify it. It’ll just happen, trust them. But in fact, the incremental degree to which car donations to charities suffers is likely to be small. How can I say that? Because charitable orgranizations themselves worked with Congress and the administration to set the 18 MPG threshold for the program, in order to minimize the adverse impacts on their donation program. In other words, they’re on board.
Oops again.
Then we have the concern over the Federal debt. Unfortunately for this argument, the additional allocation is from already appropriated funds, simply transferring them over. So the edebt is already incurred, nothing additional involved.
Opps cubed.
The concerns over dealers “not being able to close the deal” really are a testament to how popular the program was, aren’t they? And now, of course, with additional funding made available, those dealers WILL be able to close those deals - adding revenue to their very private enterprises, paychecks and commissions to their employees’ pockets, tax revenues to their communities, vehicle registration revenues to their states, . . . well you get the picture.
The horror.
Now, “subsidization”. An interesting concept. That implies that there’s no benefit to the general public from this program. Nope, nothing good here. No increased economic activity, no bump in employment and paychecks, no additional local and state tax revenues, no decrease in pollution, no increase in older car inventory (which, as Econ 101 REALLY tells us, will decrease prices for that inventory). Nothing good at all. No payback on investment to the people whatsoever. And I am a fish.
Mr. Landsbaum’s last point is just a repeat of his previous “adding to the Federal debt” falsehood. Sure it’s redundant, but it’s fun redundant. Plus, why lie once when you can do it lots and lots of times? Given the ignorance of basic economics displayed here, it’s no surprise he blew this one too.
So let’s congratulate Mr. Landsbaum, for exposing a program that did exactly what it was supposed to do, and did it so well - that offered a service so in demand that its customers were left pounding on the door for more, forcing its offerors to add on to the program - as a . . . failure?
Wow.
I would add that once you commit the kind of money the Congress committed for the GM bailout, then not spending some cash on the demand side of the equation would be pound foolish.
“Yet Heritage Foundation (the fine fellows who brought you the Bush economic collapse, …).”
LOL! While with a Democratic congress, no less! What awesome superpowers they must have.!
This clunker program seems pretty good, for those who can afford the rest of the new car pricing (which generally is not the lower class and unemployed). However, it hasn’t passed the Senate yet. I suspect it will, but then there will be one less IOU to Obama. I wonder what the trade-off will be? Watered down Health Care? Diced up Waxman-Malarkey? Politics is sooooo much fun.
rlh,
Usually I agree with you more than I disagree.
But I have to say that this program always made me uneasy. After all, who drives a “clunker”? Kids whose parents passed a car down, low income wage earners, people with trashed credit, seniors on a fixed income?
These are not people who are going to pay cash for a vehicle, even with the incentives and matches. So, basically, in the midst of a recession and massive unemployment, we are encouraging people, many of whom are already living on the edge, to take out auto loans for new cars.
I just don’t see the merit in encouraging people who shouldn’t be taking on debt to go out and buy shiny new toys they can’t afford, using my tax dollars. It really annoys me, because I drive am old car with 284,000 miles on it. But people who are already bad risks are getting tax dollars from me and other hard working taxpayers to buy new cars they cannot afford, to bolster auto companies who are getting my tax dollars to stay afloat? What is wrong with this picture?
That’s not only Econ 101, but Logic 101.
No one is forced to buy a new car. By all means kids and the poor scan (and ion many case probably should) keep their old cars. You’re confusing an incentive (”buy one get one free” ) on the seller side with basic evaluation of resources and (God I’m saying it) personal responsibility on the buyer’s side.
What’s the mantra that folks like Mr. Landsbaum have been saying, in decrying assistance for homeowners under water vwith their mortgages? “If you can’t afford it, don’t buy it.” Well, to the extent that pithy phrase has validity, it ought to be ringing in people’s ears right now, and guiding their decisions about whether to avail themselves of the program here.
Will some portion of the buyers get something they can’t afford? Possibly - though I doubt very much, given the tighter loan requirements that are in place these days compared to a year or more ago.
I understand and agree with your mourning for times of greater personal financial management skills. But the fact is that something like 70% or more of our economic activity is driven by consumer spending, and we’re not going to recover unless the consumer sooner or later opens his wallet - not profligately, but without irrational reservation. I don’t see this program as encouraging profligacy or unwise spending habits by cunsumers. To the extent they exist, they’re systemic.
Maybe somebody on these boards can answer a couple questions for me.
Obviously, if the market value of your old clunker in over $4500 you would not participate in the program, right? If you could sell your old car for $5500 you certainly wouldn’t turn it in on a trade to the dealer for $4500, agreed?
Ok, so the demographics of the population who would participate in this program would be lower-middle class or poor, right? Who else would own an old clunker not worth over $4500? That’s the bluebook for a 1990 Taurus for god sakes!
How many lower-middle class or poor people have the wherewithal to finance or pay cash for a brand new car? The average new car costs $27000. So knock off $4000 and it leaves the buyer with a balance of $23000 plus tax and license. How many lower-middle class or poor could swing that?
So what’s the scam here? Are rich people buying clunkers for $700 and turning them in for the $4500 rebate with fraudulent paperwork?
How did they find 250000 lower-middle class or poor people with enough money in the middle of a deep recession to buy new cars?
Help me out.
Oh, and keep in mind when one buys a new car there are added expenses over and above the purchase price like higher insurance rates, particularly when the car is co-owned by a bank, depreciation, higher annual license fees, etc…. what poor or lower-middle class schmuch turning in his clunker can afford all that money? And what rich person would own a car with a market value of less than $4500? Come on. Something stinks here.
The part we think best underscores the futility and harm of Washington’s help was summed up by one auto dealer who told CBS News:
“If they can’t administer a program like this, I’d be a little concerned about my health insurance.”
That’s quite a bit of irony coming from a private entity that was circling the drain until the government stepped in to save them.
If Mr. Landsbaum had any brains he’d be grateful, those “expensive ads” he’s complaining about are helping to keep his industry afloat.
If the Register goes under, Mr. Landsbaum will be in big trouble, there just aren’t many jobs out there for those who specialize in cutting-and-pasting.
I am totally on board with Mr. Landbaum on this one. Listen, friends. The % of national debt to GDP has soared in the last 30 years due to deficit spending. In 1981 debt was about 150% of GDP (GDP=$3.2 tillion, Debt=$4.5 trillion). Last year debt was over 350% of GDP (GDP=$14.2 trillion, Debt=$50 trillion). The only thing that has been fueling the GDP in recent years is the increased debt by pulling the GDP forward. With the economy contracting now the government is trying to compensate for the lack of credit (debt) in the private markets by throwing trillions of your taxdollars at the problem. That is not a cure. That is simply delaying the inevitable and fueling the fire. The only real cure is allowing the debt to default over time and more pain. But that is not politically feasible. Politicians don’t win elections when massive bankrupcies occur. So you will see more and more programs like this. Taking your taxdollars and giving it away to someone so they can buy something they really don’t need. More bubble economics. Eventually like an overheated keg of gunpowder, eventually it must explode. The mounting deficits are simply mathematically unsustainable regardless of what the bought off economists or political hacks tell you. Hard to say how long it will take to explode. 2 years? 5 years? 10 years? But explode it will. Math never lies.
The mounting deficits are simply mathematically unsustainable regardless of what the bought off economists or political hacks tell you. Hard to say how long it will take to explode. 2 years? 5 years? 10 years? But explode it will. Math never lies.
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Sounds like the CA pensions system, regardless of what the bought off politicians or public union hacks tell you.
Hard to say how long it will take to explode. 2 years? 5 years? 10 years? How about this-we are at the explosion point RIGHT NOW. BOOM<!, heare that?….that is your pocket book exploding with tax increases so some GED cop or FF can “retire” at age 50 with a $5 million dollar pension
The system has crashed and is now buring. Calpers will get a ROI of at most 5%, which is 40% less than the 7.75% they claim they are capable of making. And if the idiot running Calpers goes after “exotic” investments to get that %7.75% ROI (and why not, he gets a bigger bonus if he wins his roulette and taxpayers get stuck with the bills if he bets wrong) it is possible Calpers will have a negative return for many future years.
Watch how many of the people who participate in the ‘cash for clunkers’ program default on their car loans! ha! I’d say at least half. This is the same kind of manure that got us into trouble in the first place! Bubble economics! Give-a-way programs through low interest rates, subprime mortgages, government deals that entice poor people to buy things that they don’t need with money that they don’t have! ha! And when these schmucks can’t make the payments on their auto loans the government will step in and bail out the auto makers once again! ha! You already know about the INSANITY thing, right? Doing the same thing over and over again yet expecting a different result? Welcome to the nuthouse! Take off your shoes and stay awhile!
Give-a-way programs through low interest rates, subprime mortgages, government deals that entice poor people to buy things that they don’t need with money that they don’t have.
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OCO, I am curious as to why you think this program has been implemented with people who would default, have bad credit or don’t have the money to buy straight up-as in cash?
JV,
I thought I explained that already. My belief if that only the poor or lower-middle class would participate in the program. Why? Because to qualify you had to own the clunker for at least a year and have the registration and car insurance docs to prove it. And the maximum credit you would get on a trade-in would be $4500. In other words, if the clunker was worth $5500 on the open market you wouldn’t turn it into the dealer for a $4500 credit, right? How many people with any money would own a clunker worth less than $4500? Okay, let’s go to step #2….how many poor or lower-middle class folks can really afford to buy a new car even with the discount? They are looking at $17k-$23k out of pocket cost. How many poor folks have $20k in cash? And if they finance the purchase they have to pay a steep interest rate and buy comprehensive insurance that will run them $1500 or more a year. And the annual registration fee is going to be high on a new car too. How are they going to pay for it? The chance of default is high because many of these lower income earners have lousy credit and are high risk. I know alot of middle class folks and only a handful own a car worth less than $4500, Don’t you see that the government is blowing up another bubble here by enticing people to buy something with money that they don’t have? This is nothing different than the RE bubble when the gov offered artificially low interest rates and encourage sub-primes to entice indigents to buy homes! How did that work out?
My belief if that only the poor or lower-middle class would participate in the program.
So you have nothing but your own beliefs?
So typical of you to claim something when you’ve proven over and over you don’t know anything.
OCO-I think you have made many generalizations, many speculative.
I don’t think the program will target the group you say-based on your thinking that just poor people own older cars-or “clunkers”.
I also think your generalization about most paying a high interest rate is speculation. Certainly some will pay a higher uinterest rate, but I doubt very many, and certainly not a majority.
I know many well of people who drive a vehicle for many years-and also pay cash up front in their purchases-including cars. They are well off for a reason-they are smart finance wise, and thrifty. That is one reason they are well off.
I am not going to argue with you that this is a form of welfare-gov aided spending to spark the economy by enticing “consumerism”, and I agree this is not the best way to take our medicine.
But I disagree with you that most of these cars will be sold to people who cannot afford them and will default.
Well that’s the great thing about america. Opinons are alot like bellybuttons (or another orafice comes to mind). Everybody’s got one. But I challenge you to drive through Balboa Island or Carona Del Mar neighborhoods and take note of how many clunkers (those worth $4500 or less) you see parked in the driveway. Then drive through Santa Ana or Garden Grove and take the same survey. Let me know what you find out. The large majority of clunkers in this country are owned by the underclass. To make any other assertion flies in the face of common sense.
A 1990 tarus is worth about $400…FYI.
I have 2 friends that make well over 100K a year, that drove older cars that they had for awhile, one had an old bronco that had over 150K miles on it and the other had an old honda. They had another newer family car that their wives drove, while they drove theirs to work. Both cars started needing repairs and such that were getting expensive, both were on the fence about buying a new car, both of their cars were worth far less than 4500.
These are the people that this program was desinged for. For certain there are those that will go out and try to buy a car they cannot afford….the banks are not as generous with their money as they used to be….These folks are going to do it anyways. What happens as these cars age and they have to put the repairs on a credit card. It places them in the same position.
This program helps many people, it helps the local economies with sales tax, it helps the environment, it takes older potentially dangerous vehicles off the road. I can see why some would want to detract from all of these positives, but they truly out weigh the negatives.
Too assume it is only the poor and lower middle class that are taking advantage is foolish.
You missed my point entirely. The people you referenced are not the rule. They are the exception to the rule. People with money don’t own cars with a book value of less than $4500. This is common knowledge. Go to some upscale neighborhoods and look what’s parked in the driveways. Do you see any clunkers? ha. Get outta here. The program was designed to target people who don’t have the extra money to buy a new car. This is the government yet blowing another bubble to help bail out the auto industry since they now own a good part of it. ha. Another ploy to light a fire under consumerism. The last thing a poor or lower-middle class family needs is a brand new car. It simply enslaves them to a payment they cannot afford. The program is a waste as it demolishes used cars that are operable and drives the price up in the used car market for people who need to save every dollar that they can. This is no different than what they did in the RE market by offering artificially low interest rates and subprimes to suck in the poor and lower middle class to buy homes that they couldn’t afford. Like I asked you before…..how did that work out? These are all short term solutions that add additional explosive material to the finanical time bomb that is ticking away. You just haven’t figured it out yet. And the disgusting thing is that are once again giving taxpayer money to these car buyers, many of whom will end up defaulting on their loans. The whole thing is one big joke!
ocobserver says:
August 3, 2009 at 4:45 amYou missed my point entirely. The people you referenced are not the rule. They are the exception to the rule. People with money don’t own cars with a book value of less than $4500.
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MANY people with money own cars that are clunkers, that is one reason they have money-they don’t go out and waste tens of thousands of dollars on a leased Beemer or Mercedes and instead buy a modets car, pay it off and then drive it forever.
JV, for your convenience I copied and pasted my previous post here:
“Well that’s the great thing about america. Opinons are alot like bellybuttons (or another orafice comes to mind). Everybody’s got one. But I challenge you to drive through Balboa Island or Carona Del Mar neighborhoods and take note of how many clunkers (those worth $4500 or less) you see parked in the driveway. Then drive through Santa Ana or Garden Grove and take the same survey. Let me know what you find out. The large majority of clunkers in this country are owned by the underclass. To make any other assertion flies in the face of common sense”
^^^^ Yes, I disagree^^^^^