Last week, Congress began debate to determine if additional funds should be allocated to the “Cash for Clunkers” program to the tune of another $2 billion. Originally funded for $1 billion, the program is already out of money even though original projections had the program fully funded through November 1, 2009. The debate began after some members of congress reported the program was out of money due to excess demand. The program provides up to $4,500 in incentives to car buyers who qualify.
White House Press Secretary Robert Gibbs made the following statement last Thursday, reacting to reports that the program would have to cease due to lack of funding, “If you were planning on going to buy a car this weekend, using this program, this program continues to run. If you meet the requirements of the program, the certificates will be honored.”
‘The Wall Street Journal” ran a story on Thursday, July 30 in which the CEO of Autonation, Inc., Michael J. Jackson, said, “It was an absolute success. There’s a very compelling case the government should put more money into it. It’s a great stimulus to the economy.”
I disagree – vehemently.
This program does nothing more than borrow against future demand – the same little game that got us into trouble in the first place. After all, the cars being replaced are clunkers – old iron soon to be found in the junkyard anyway. When this old iron quits running, it needs to be replaced. This program is merely accelerating demand, making car sales now at the expense of future sales.
Sound familiar?
The housing market should be proof enough this doesn’t work.
It’s easy to sell free money, but free money almost always has consequences. When you give anyone who’s breathing a home loan regardless of the fact they could never pay it back, it’s easy to sell home loans. It gets even easier when these home loans are given with no money down. Free money is easy to sell.
But look where we are now as a result of this “free and easy money”. Housing demand, in my view, won’t be the same for many years to come.
This cash for clunkers program may provide some short term movement in the auto market, but it can only hurt it long term.
And, arguably, there’s a better place for taxpayers to invest than in assets that will depreciate. Sigh. Until politicians quit thinking in 2 and 4 year time frames, none of this will likely change.
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