What Have We Learned from Cash for Clunkers?

cash for clunkers

Cash for Clunkers is officially coming to an end at 7pm on Monday, August 24, 2009.  By some accounts, this has been a wildly popular and successful government program which has helped to put our economy on the road to recovery.  Others argue that Cash for Clunkers is just another example of wasteful government spending, and that it will provide little toward the goal of long-term economic recovery.  Regardless of how you feel about the Cash for Clunkers program, here are some observations to be made and lessons to be learned.

  1. When the government is giving away so-called “Free Money”, there will be no shortage of people willing to take the money.  Even people who didn’t need the government assistance, or who were opposed to the program in principal, were willing to allow the federal government to pay $4,500 toward their new car.  I’m not criticizing them, but merely pointing out that when the government is offering handouts, virtually everyone is willing to accept them. 
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  3. There are always “unintended consequences” of government programs.  For example, with Cash for Clunkers, a lot of the cars sent to the scrap heap had many useful miles left in them, and could have provided affordable transportation to Americans of limited financial means.  By junking these cars, the government has contributed to a shortage of used cars, effectively driving up the cost of used cars.  This hurts people who need to buy reliable used cars in the $2,000 to $3,000 price range.
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  5. Once again, we’ve seen that the federal government is incredibly inefficient in administering any type of program.  The Cash for Clunkers program has been plagued by red tape and inefficiencies that only our federal government could create.  Many car dealers who have participated in the program are facing cash flow problems because they haven’t received the funds from the federal government.

 
So was it worth it?  There will be much disagreement about that question, but my guess is that when we look back at the Cash for Clunkers program, the general consensus will be that it wasn’t worth it.  At the end of the day, we will have added $3 billion to the deficit and the national debt for a “temporary” spike in new car sales.  This spike will likely be followed by a dramatic slowing of new car sales, because Cash for Clunkers will have already soaked up most of the new car demand in the marketplace.  Sometimes it makes more sense to just let the market run its natural course.

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