I have heard many people claim the cash for clunkers was a huge success, but it troubles me when I hear this because cash for clunkers was flawed in many ways. In fact I think cash for clunkers was a huge failure and I will tell you why.
A big giveaway to the programs intrinsic flaw is it involves a physical destruction of value. In theory there is incentive for a car valued at $4,499 to be destroyed. This is even worse than digging ditches and filling them to create jobs.Another giveaway to the intrinsic flaws is that government is stepping in and picking winners and losers. It is worth pointing out that since the net result is a destruction of value, there will actually be more losers than winners.
One obvious loser is the taxpayer. The program was $3 billion so each taxpayer had to pay $20 on average for this program. The person getting $4,500 for scraping their car is essentially receiving this privilege because the government is basically making 225 people each give this person a twenty dollar bill.
Those 225 people would have surely spent their $20 on something better for the economic welfare of our society than what amounts to providing someone incentive to scrap something of value.
Very poor people were actually hurt by the cash for clunkers program. Think of a mother who needs a car to get to the grocery store, Wal-Mart, and the clinic. A $4,000 car that got 10 miles per gallon car would be very effective at taking her a mile down the road and back. Unfortunately, taxpayers had to pay $4,500 to scrap a car like that.
There will be winners and losers with every government decision. Whenever the government picks winners and losers I get worried because the government tends to be extremely inefficient and illogical. Please don't be fooled into thinking it is a success when taxpayer dollars are used to benefit certain groups by paying them to destroy something of value.
For those who are interested I had a plan that would be far more effective and efficient at increasing the fuel efficiency of cars in America. You can read about it here.
