Cash for Craziness

The “cash for clunkers” program might live on, if the Senate sees fit. As we mentioned Friday, the program burned through a four-month budget in a week. $1 billion later, the program rests in the Senate’s hands today. Legislators have just a few days to OK an additional $2 billion before the program is completely bankrupt. We’d be surprised if it didn’t go through… the people want their free lunches.

“The ‘cash for clunkers’ program provides a microcosm of the unimaginable macrocosm,” writes our macro-economic adviser, Rob Parenteau. “Funding for this trade-in program was originally expected to last until October, but the response has been so overwhelming that it’s already running out of money and Congress is rushing to add more cash.

“So here we have it. The government dangles a subsidy worth over $4,000 before the eyes of otherwise tapped-out households. The auto dealers tirelessly hype the offer. Pavlov’s dog hears the bell and starts drooling all over himself. Auto sales are shifted from future sales periods into the present, and voila, the can is kicked one more block down the road while the fiscal deficit winds higher. If we had to capture the policy steroid game in a nutshell, that pretty much sums it up. But it does work in the near term.”

Just one more thing about cash for clunkers… have you heard what the dealers do with the “clunkers”? By government decree, every traded-in clunker has to have sodium-silicate poured in its engine and run until rendered completely and eternally useless. Doesn’t matter if the engine’s brand-new — less than 18 mpg and it’s destroyed. No resale, no charity, no exports to foreign nations… not even a moment’s consideration to whether the drivetrain could be used by anyone, for anything, anywhere.

All clunkers are then towed to the scrap yard, where some parts are stripped and the rest is smashed and shredded. (And you know that metal scrap will get shipped straight to China… at least someone will use it.)

The Daily Reckoning