Another Cash for Clunkers Conundrum

The “cash for clunkers” program is creating a small jobs boom — for the government. The Obama administration has vowed to triple the number of government employees processing “cash for clunker” vouchers from U.S. dealerships. The program has been such a “success” that the government can’t keep up with the vouchers coming in, and poor dealers are complaining that they have to sit on big losses while they wait for government reimbursement.

By the end of the week, up to 1,100 people will be working full time to process cash for clunker reimbursements.

“A growth strategy that requires wealth destruction,” writes Rob Parenteau, “in this current case, the scrapping of cars in working order, which are part of the stock of durable assets — is, to our eyes, more an act of policymakers’ desperation to ‘prime the pump’ of GDP growth than a sensible way forward. However, since major wars used to be the ultimate policy expression of this growth strategy, we will accept ‘cash for clunkers’ as a relatively more benign method of government-subsidized wealth destruction…

“There is a deeper problem, though, beyond the ‘growth through wealth destruction’ aspect of this program or the faux green shade of the ‘cash for clunkers’ charade. If the analysis Dr. Richebächer pursued is correct, stimulation of consumption by issuing public debt is not the best solution to an extended period of overconsumption… especially one fueled by household debt, which, in turn, was built up on the back of asset bubbles. Encouraging investment in new industries or new export markets would offer a better route to a more balanced growth path.”