Cash for Clunkers is a Lemon

We couldn’t pass up this opportunity to talk about the newest bamboozle on the market: ‘Cash for Clunkers’. We realize everyone is talking about it – but for good reason!

First of all, this plan, which is barely two weeks old, is already bankrupt. The Obama administration had to go back to the Senate asking for more cash this week, saying if they didn’t get more money, the program would be shut down by Friday. The Senate voted 60 to 37 to give the program another $2 billion.

The Obama administration says this will keep Cash for Clunkers going until Labor Day…which is about one month from now. Does anyone think that this is quite a bit of money to dump into a brand-new program to keep it running for just – one more month?

And as Bill has been pointing out, this is just another example of the government promoting the idea that the future doesn’t matter – just spend for today. He wrote in Friday’s essay: “Instead of letting the consumer buy a new car when he is ready, the feds give them money to buy now. So, he buys in 2009 and not in 2010. What good is accomplished? It is as if they didn’t expect 2010 to ever arrive…”

The Wall Street Journal backs us up here: “The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.”

But who’s worried about national wealth? Certainly not the US government, who, in the face of an estimated $1.8-trillion budget deficit this year, passed what is basically another auto bailout…to the tune of $3 billion.

Keep reading for Bill’s view on why Cash for Clunkers, and the other ‘stimulus programs’ won’t lead the United States to a recovery…

People believe that there is a recovery…and that it is the result of stimulus efforts by the feds. The results from the second quarter show the economy still contracting…but at a slower pace, just – 1% annually, rather than the – 6.4% recorded in the first quarter. This is heralded throughout the world as proof that the crisis is receding.

“It if weren’t for stimulus spending, the contraction [in the 2nd quarter] would have been closer to 4%,” says the editorial in the International Herald Tribune. “The stimulus is helping…and more stimulus would help even more.”

Oh? Would it? Let’s look at stimulus-in-action:

Cash for Clunkers’ is a hare-brained scheme…but that doesn’t make it unpopular. The idea is to stimulate demand by, well, giving people money. But instead of just giving them money and letting them choose what to do with it, the feds decide they need a new car. In order to the get the money, people have to buy one.

According to the press reports, the program has been a great success wherever it has been put in place – in France and Germany, as well as in the United States.

If so, why not apply the concept elsewhere? How about cash for houses? Cash for liquor? Cash for newspapers? Cash for trips to Europe?

What’s so special about autos, in other words? And why is it a good thing for people to buy cars?

Oh c’mon, dear reader…don’t pretend you don’t know. The auto industry is huge…with many lobbyists and many organized groups interested in its wellbeing. It is an old and well-established industry with plenty of political clout.

Tomorrow’s industries, by contrast, have no lobbyists…no organized labor… no pet congressmen…no political action committees. So who gets the money?

The above is just an excerpt from Bill’s standout essay from this week. You can read it in its entirety here.

Enjoy the rest of your weekend,

Kate Incontrera
The Daily Reckoning