Monday, August 03, 2009

Who's going to drive you home tonight?

Don't know if you've noticed, but there's been a decided push among our betters to sell the notion that the current blandishments on offer from our friends inside the Beltway are making things better. In particular, the beneficent "Cash for Clunkers" program is supposedly leading to a better tomorrow, or at least until the funding runs out.

Then again. . . .

As the Wall Street Journal points out, this is crackpot economics:

The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.
An excellent point. Chad the Elder over at Fraters Libertas notices something else, too:

Did it really generate new economic activity or merely bring forward spending that was going to happen anyway? As product companies well know, you can always increase your short term sales by pulling in your future backlog. The problem is refilling that backlog so you're not twiddling your thumbs when that future arrives. Not only is this "cash for clunkers" surge unsustainable, it's probably already cannibalizing sales of 2010 models which will arrive at dealers in a few months. Who's going to be buying cars then?
It won't be all those folks tooling around in RAV4s they bought last week. And there's more than a little bit of irony that so many of the people choosing to cash out their clunkers are choosing foreign makes, no?

But that ain't all. Bike Bubba makes another excellent point:

Think if you will about "cash for clunkers," as well as the $8000 tax credit for first time homebuyers. Now who is driving a clunker, or renting? If you answered "people not in a position to buy a nice car or home," move to the head of the class.

So we must assume that a large portion of those taking advantage of these programs are those who would not qualify to do so otherwise, right? So here's my prediction; after the initial down payment/payments provided by Uncle Sam (picked right from your pocket) is spent, large numbers of the buyers of new cars or homes will default, plunging the country into at least a second, if not a third, dip in the Pelosi/Reid/Obama recession.
There is a lesson here, if the Obamaoids are prepared to learn it. People do respond to incentives, especially financial incentives. When the government gives away free money, even if it's really money that they pull from my pocket and put in the RAV4 buyer's pocket, the RAV4 buyers will come and get it. And when the Obamaoids come looking for more money, the people who have it (a/k/a "The Rich") will respond to that as well.

2 comments:

Anonymous said...

Mark,
quick question: Were you complaining in 2002 when Bush passed his version of Cash for Clunkers for the Well-off? What I am specifically referring to is the tax break he put in the tax code that provided a 50% tax deduction - taken as a lump sum - for the purchase of SUV’s over 4000 pounds. So that a dentist, doctor, lawyer, small business owner or software contractor could purchase that Hummer that was so vital to them running their business, and immediately writ off $50,0000 of the original purchase price. a small business owner purchased a $100,000 Range Rover he wrote off $50,000 on his taxes. That is a pretty sweet write-off; about $15,000 for someone in the 30% bracket. And I am sure the House of Saud was grateful too.

BTW, good luck with your new configuration. I am looking forward to the changes.

Rich

Mr. D said...

Ooh, a gotcha! And with a soupcon of class envy, too! Good one, Rich.

Surely you see the distinction: yes, I would imagine some lawyers or software engineers bought Range Rovers or something evil like that, but a lot of people like general contractors bought F350s, too. And in no event did anyone take the vehicles that would have (presumably) been traded in and have them destroyed like the current program does.

I'll cop to this: I didn't say anything about the 2002 program, mostly because it wasn't on my radar screen. The Bushies didn't trumpet it as a signal success of their administration, either.