“Cash for Clunkers” has been a fiasco. A program, designed to stimulate the struggling auto industry by providing federal rebates to consumers who purchased a more fuel-efficient vehicle has run out of money after only two weeks of operation. The program, scheduled to last until November has run out of cash and is seeking an infusion of additional cash.
The primary cause of the failure of this program lies in its inability to predict the demand of the consumer. At its inception, the government allocated $1 billion to fund the program until November. However, after only two weeks of operation, the government has shutdown the program because it has run out of cash leaving dealers who sold vehicles discounted by the amount of the anticipated rebate waiting for their money.
The reasons for the failure of this program mirror the reasons rent control has failed where it is used. When the government or any central planner steps into the free market and attempts to prop up demand by artificially lowering prices either through price controls (i.e. rent control) or a rebate (i.e. Cash for Clunkers) they cause market failure. In the case of Cash for Clunkers the problem is that the government incorrectly assessed the reason for declining demand in the auto industry.
The government thought the reason for declining demand was high prices and determined that a rebate program would take care of the problem. They were correct in their prediction that the program would increase demand for new cars and actually underestimated this demand. This is why the program ran out of money. However, even though the program has resulted in a temporary spike in car sales, it has also created a problem that will surface in the future.
The reason for declining demand in the auto industry has little to do with prices and much more to do with rising unemployment. With unemployment approaching 10%, 1 in 10 Americans has lost their job and the other nine are living in fear that they are next. For this reason, the nine employed individuals have been saving their money and driving the old clunker longer.
In slow economic times like the ones we are currently in, this is the most commonsense strategy for individuals to have. If the government wants to involve itself in stimulating demand in the auto industry, and other industries, it needs to stop wasting money implementing gimmicky programs like “Cash for Clunkers” and formulate policies to create jobs and reduce unemployment. However, this is not what our wonderful representatives in government did. Instead, they implemented a gimmicky program and directed consumers to purchase new cars they may loose if they become unemployed due to the continued economic slowdown.
When will our representatives in government wake up and implement real economic stimulus through tax cuts that put money in the hands of individuals and businesses? The answer, unfortunately, is never for the current crop of policy makers. That is why we the people need to step up. We need to write our congresspersons, senators, and The President and tell them to stop this insanity. We need to let them know that if they fail to do this there will be serious consequences for them in the next election.
To make this easy, I have provided links, in the internet links section of this blog, to find your senator and representative so you can contact them. I am also providing a link the White House so you can let The President know how you feel about the current direction of government.
We are still the boss in this country and it is time to engage.
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