Conservative Analysis of Cash for Clunkers

As I have noted in earlier posts, the role of government, especially the federal government of the United States, is not to manage the economy, but to protect our rights. Government policies impact on the economy and ought not to harm it any more than is necessary, but there is little that the government should do economically per se.

The Obama Administration’s $787 billion so-called economic stimulus plan as an example of massive government overreach into the economy. It is one thing to provide income tax credits in order to stimulate the economy, as the Bush Administration did in 2008, but another thing to confiscate money from some citizens and give it to a favored few in furtherance of some social policy or some political payoff, as the Obama Administration is doing. The economically stimulative effect of the Obama policy is dubious because most of the stimulus money is to be spent in later years when the economy would have recovered on its own, while much of the current stimulus spending is in various forms of Congressional pork and other political patronage and favoritism of little economically stimulative value. Moreover, the price of the spending plan will be massive federal budget deficits, which would lead to even more borrowing and taxing. Concern over the long-term cost of the Obama spending spree to the economy has increased economic uncertainty, which is counterproductive to economic recovery.

Nonetheless, in February I stated in my post “Obama’s Sending Spree” that there might be some short-term economic benefit from some of the spending. Apparently, one program in particular has proven to be relatively stimulative, the “Cash for Clunkers” tax credit which rewards purchasers of new, more fuel-efficient automobiles who trade in their older, less fuel-efficient automobiles.

The program has proven the effectiveness of tax cuts, as auto sales have increased significantly. This tax credit is of the kind that benefits one major industry that the Obama Administration has already heavily subsidized at the expense of all income earners. However, it also does help one significant category of small businesses: auto dealers, in addition to automobile consumers. In short, the Cash for Clunkers program helps a few at the expense of the many, but it helps more people than most of the rest of the economic stimulus plan. Critics of the program make a legitimate point in complaining that there ought to be a corresponding tax credit for the consumption of other goods, as well, even if it were limited to other energy-efficient goods. The program is not the right kind of economic stimulus, which would be a tax credit for all income earners, as it is not appropriate for the government to meddle in the economy, especially with favoritism. Tax cuts for all income earners would give people the freedom to spend their money in economically better ways than the government would, but it would do so for the sake of liberty, with any economic benefit as a bonus. Nonetheless, Cash for Clunkers represents less wasteful government spending than most of the rest of the $787 billion boondoggle. Taking some of the money allocated for the rest of the stimulus and redirecting it to the Cash for Clunkers program would be a slight improvement over the status quo.

Let us urge the Congress and the Obama Administration to apply the economic lesson of Cash for Clunkers to the tax code and cut income taxes in order to spur more consumption by increasing liberty.