When we talk about government policies destroying wealth, we usually mean taxes that shift money from efficient to inefficient uses. Rarely do we mean the deliberate destruction of valuable assets. Yet, thanks to the Cash for Clunkers program, which ground to a halt yesterday, we now have a visual aid to help with this abstract concept. Mechanics tasked with destroying the so-called clunkers have been posting the videos on YouTube, often muttering in anger as they fill the engines of perfectly good Corvettes and Cadillacs with sodium silicate and then run them until they self-destruct. The goal of the Cash for Clunkers policy is, literally, the destruction of wealth.
To get a sense of how much value the program has destroyed in its short lifespan, keep an eye on used-car prices, which are expected to skyrocket as dealers see their inventory sacrificed to Washington’s green gods. Look also at the 12 percent decline in used cars donated to charity. This is to say nothing of the extra use their owners could have gotten out of them if the government hadn’t subsidized their destruction.
In addition to flushing tangible assets, the program has destroyed wealth in other ways. First, it has added $3 billion to the deficit, which will have to be taxed out of the productive economy at some point. That’s money that won’t be saved, invested, or spent on other goods and services. Second, the $3,500–$4,500 vouchers for new vehicles only covered part of their cost. Buyers covered the rest by borrowing or spending their own money. Some of these buyers would have purchased a new car anyway, but other car owners spent money on new cars they didn’t need because of this policy. These consumers had less money to spend on other consumer goods last month, as reflected by worse-than-expected non-vehicle retail sales. Cash for Clunkers robbed from the taxpayers and the rest of the economy to pay Detroit and a few hundred thousand new-car buyers.
Now that the program has become a furnace for taxpayer cash and an administrative nightmare, Transportation Secretary Ray LaHood wants to declare victory and go home. We should deny him peace with honor. He says the program was a success because it boosted new-car sales and helped out the struggling auto industry. This “stimulus” argument is the only leg the program’s defenders have to stand on, as most have conceded that Cash for Clunkers will provide little to no environmental benefit.
The stimulus argument is bunk, too. As mentioned above, the program “boosted” new-car sales by encouraging consumers to direct their money away from other economic uses. One could counter LaHood by noting that the program depressed other kinds of sales and investments. Also, the boost in sales is partially illusory. Car dealers expect their dealerships to turn into ghost towns once the program ends.
As for the “struggling auto industry,” eight of the top ten selling vehicles under the program were Japanese brands. Cash for Clunkers helped Detroit, but most of the money went to subsidize sales at companies that didn’t need help. The Japanese automakers make cars in the U.S., but their non-union workforces helped them avoid the catastrophic cost-structures that doomed Detroit.
In the end, though, one returns to the footage of mechanics pouring liquid glass into the engines of drivable cars and destroying them. There is no better symbol for what happens when the government takes over large swaths of the economy. It is an important image to keep in mind during the health-care debate: We may not get death panels, but we’ll definitely get sand in the gears.