Cash For Clunkers - The End
This cash for clunkers program finally ended. Congress had budgeted an additional $2 billion for the program. Car companies were running out of certain models because of the increased demand (which came after they had prudently shut down production caused by the reduced demand from the recession). In the end, you could order a car that hadn't even been produced and get the $4,500. Now the government has declared victory and called it a day. The program was a roaring success...so they say.
In past posts we questioned why the dealers are putting the clunkers to sleep (destroying their engines so they can't be driven anymore). We also pointed out how the poor are especially disadvantaged by this program. Now we finish up with two general points no one seems to be talking much about - and they involve all of us.
Now we're not talking about the idea that many of the purchases that occurred over the last few months will reduce future demand for cars. That's an obvious one. People already bought, so they won't be buying in the next year or so.
What we're talking about here has to do with the "hidden consequences" of cash for clunkers. If you remember, we pointed out that those exchanging their clunkers for a new car needed to come up with a pretty substantial amount of money. The $4,500 doesn't cover the cost of the new car - not even close.
If you take a loan for the balance, you're going to be making car payments every month. You've increased your level of debt. Too many Americans have too much debt. Increasing debt isn't good.
But even if you pay cash, then that money's not available for other things. In terms of the overall economy, the car company benefits, but someone loses too. Who? Maybe you put off a home improvement you had planned on for this year. Maybe you don't go on vacation. Maybe you cut down on going out to eat. Add what you want to the list, but you get the point
The point is that while one business benefits (auto manufacturers), others will suffer. But we won't know who they are. That's why the consequences of this sort of program are hidden. All you'll see is the increased car sales. Whooppee! See how the program is boosting "economic activity"? What a great idea.
But you won't ever see who suffered a loss of business. Even the businesses who lose out won't know they're losing specifically because of cash for clunkers. But they will see a slowdown in sales.
Did some people need a new car? Probably. Did everyone who exchanges their clunker for cash and a new car need a new car. Probably not.
Finally, there's that little issue of just who's paying for all this. You know the answer to that: you and me. As for me, I'm really not in the position to be funding new car purchases for perfect strangers. Are you?
In past posts we questioned why the dealers are putting the clunkers to sleep (destroying their engines so they can't be driven anymore). We also pointed out how the poor are especially disadvantaged by this program. Now we finish up with two general points no one seems to be talking much about - and they involve all of us.
Now we're not talking about the idea that many of the purchases that occurred over the last few months will reduce future demand for cars. That's an obvious one. People already bought, so they won't be buying in the next year or so.
What we're talking about here has to do with the "hidden consequences" of cash for clunkers. If you remember, we pointed out that those exchanging their clunkers for a new car needed to come up with a pretty substantial amount of money. The $4,500 doesn't cover the cost of the new car - not even close.
If you take a loan for the balance, you're going to be making car payments every month. You've increased your level of debt. Too many Americans have too much debt. Increasing debt isn't good.
But even if you pay cash, then that money's not available for other things. In terms of the overall economy, the car company benefits, but someone loses too. Who? Maybe you put off a home improvement you had planned on for this year. Maybe you don't go on vacation. Maybe you cut down on going out to eat. Add what you want to the list, but you get the point
The point is that while one business benefits (auto manufacturers), others will suffer. But we won't know who they are. That's why the consequences of this sort of program are hidden. All you'll see is the increased car sales. Whooppee! See how the program is boosting "economic activity"? What a great idea.
But you won't ever see who suffered a loss of business. Even the businesses who lose out won't know they're losing specifically because of cash for clunkers. But they will see a slowdown in sales.
Did some people need a new car? Probably. Did everyone who exchanges their clunker for cash and a new car need a new car. Probably not.
Finally, there's that little issue of just who's paying for all this. You know the answer to that: you and me. As for me, I'm really not in the position to be funding new car purchases for perfect strangers. Are you?
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