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Cash for Clunkers hurts the poor

Published Tuesday, August 11, 2009 1:54 PM

Summerville Journal Scene ®

Dear Editor,

While the politicians "pat themselves on their backs" for the alleged success of the Cash for Clunkers program, those of us who think a little more logically about business and economics recognize that the program is actually a destructive force that works against those struggling to make ends meet in our economy.

To understand the destructive aspects of the program, one needs to recognize first that the government actually has no money. Every dollar the government spends comes from current (or future) tax revenue.

When the government redistributes tax money taken from one person and gives it to another, the person who actually earned the money – and has had it taken away as taxes – doesn't get to spend or invest his money as he deems best.

Although a program like Cash for Clunkers may stimulate new car sales, the net benefit to the overall economy is, at best, zero. If Johnny earns $4,000 and a government bureaucrat takes that $4,000 and gives it to Sally to spend on a new car, it means Johnny doesn't have that $4,000 to spend on the new furniture he wanted. The increased economic activity in the car business is achieved at the expense of the diminished activity in the furniture business.

But the Cash for Clunkers program, as designed by the government bureaucrats, is not just an “even economic trade-off” program. It is actually much worse. The program is destructive, because it destroys existing, useful goods in the economy. It destroys cars!

The requirement in the program that the traded cars be destroyed is one of the most asinine ideas ever thought up by a government bureaucrat. This requirement is destructive, not beneficial, to our overall economic wellbeing. It is a particularly distasteful form of destructive activity in our economy in that those on the lowest rungs of the economic ladder are the ones who are hurt most.

Cars are important in our society: it is difficult to work, go to school, and just plain live in our culture without a car. Cars are expensive items; those struggling economically have a difficult time with car ownership. A good supply of inexpensive used cars is beneficial to those who cannot afford to spend much for transportation. But the Cash for Clunkers programs requires that the traded vehicles – even those that may still represent practical transportation – be destroyed! This destruction has one sure effect in the used car market; it drives the prices of used cars higher.

Imagine a high school graduate, working hard this summer, planning on attending a local college in the fall. He goes out shopping for some decent, basic transportation, so he can get to classes when school starts. The Cash for Clunkers program will cost him hundreds, or perhaps thousands, of dollars more for basic transportation.

The Cash for Clunkers program is working to set an effective “price floor” in the inexpensive used car market. Every clunker owner (if his clunker qualifies) knows that his car is worth potentially $4,500. Such a person is not likely to seek to sell his car for less than $4,500. This drives up the overall prices in the used car market.

The program is also affecting the used parts market, increasing prices there. Normally, old “clunker” cars are not completely destroyed – even when they are exhausted mechanically. Many end up in junk yards and become a source of used parts.

Imagine a single mother, struggling to make ends meet, currently driving an older car and choosing to save money by not carrying collision insurance on her car. If she is in an accident and needs to fix her car on her own, the body repair shop she goes to will have to charge more for the used parts needed to make repairs to her car, because the Cash for Clunkers program has diverted old cars – that would have otherwise ended up as parts cars – to the scrap heap to be recycled to basic materials.

Overall, the Cash for Clunkers program represents destructive government interference in the economy. When government bureaucrats act as "central planners" by attempting to dictate decisions that should be made independently by the participants in a free market, the net effect is only to make life harder – especially for those who can least afford it.

Joe Egan

West 5th South St.

Summerville
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