Saturday, August 1, 2009


This past week Congress doubled down on its “clunkers for cash” program, authorizing another two billion dollars after the original one billion appropriation was drained. For a people who supposedly cannot manage our own spending so as to provide for our own healthcare, we certainly understand when we are getting a bargain…in this case up to nine thousand dollars for a worthless car as long as we “trade it in” for a new one. The Keynesians, who apparently have never heard of Henry Hazlitt’s “broken window syndrome”, think the economy will be enhanced by all this new spending on autos.

Now, there is so much wrong with this program that I am loath to burden the reader with all the fallacious economic theories. But something that professor Bill Dunkelberg wrote about the onerous effects of the increase in the minimum wage put me to thinking about this program. Professor Dunkelberg, writing for the Wynnewood Institute ( said that when General Motors wants to reduce its inventory of unsold cars, it reduces the price. Likewise, when labor remains unsold, meaning unemployed, the price must be reduced in order to employ all those seeking work. But, of course, our government is doing the opposite. It is raising the price of labor in the face of severe unemployment. This will only exacerbate the unemployment problem. Now back to the topic of this essay—the clunkers for cash program.

Our government took over the management of General Motors, promising to return it to profitability. But how can it do this when GM has huge unsold inventories? The only way to reduce inventories is to sell the cars for less, but GM has the highest cost structure of any carmaker in the world. The cars could be sold only for a loss. It would not do to have our government-managed carmaker experience such huge losses. Why, the electorate might lose confidence in the ability of that thirty-one year old political junkie, who has no experience in the automotive business, being able to turn GM around. Ah, that’s where the “clunkers for cash” program comes in. Rather than dump more bailout money directly to GM, the “clunkers for cash” program funnels the money through car dealerships. This allows GM to sell cars at a profit, with the subsidy booked somewhere else.

So, GM gets to sell its cars at a profit. Car dealerships get to make sales in the depths of a recession. People get to buy new cars for much less than they ever expected. Why, even the environmentalists see this as a wondrous thing: the public gets more fuel efficient cars. And the taxpayer gets to pick up the bill. After all, who cares about the taxpayer? They are nothing but rich, greedy people who deserve higher tax bills anyway. And we all know that higher taxes have absolutely no impact upon production, so these rich, greedy enemies-of-the-people will continue to risk their capital and work just as hard as before. What a country!


  1. Excellent essay. I do have one point, and I'm sure you are aware of it, but your readers might not be.

    Some (many) of the cars traded in actually have value. The cars must be drivable, but the "Cash for Clunkers" program requires the dealer to physically destroy the engine of the traded-in car by pouring sand and water into it and running it until it seizes.

    This is utterly ridiculous.

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