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Obama Program Is a Costly Clunker
08.28.09

by Penny Wise

 

Question: What does President Obama call combining politicians in Washington, new car dealers, government bureaucrats, 700,000 Americans, and $3 billion in deficit spending over 30 days?

 

Answer: A “good-news story.”

 

The president was praising his “Cash for Clunkers” program that ended on August 24 and he went on to say that the program “has been successful beyond anybody’s imagination.” Transportation Secretary Ray LaHood echoed his boss by saying the program has been “wildly successful” in jump-starting the economy.

 

Both, however, conveniently ignored the fact that the unemployment rate for July held steady at 9.4% and that “job losses continued in many of the major industry sectors.”

 

Like most of the president’s claims of economic success since taking office in January, Cash for Clunkers is an expensive program that will produce limited results while causing some unintended consequences that will do more harm than good for years to come.

 

The Wall Street Journal Online goes so far as to call the program “crackpot economics” that “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.”

 

Most importantly, the Cash for Clunkers program is being funded by an additional $3 billion in federal deficit spending. Think of it this way: If President Obama asked taxpayers to pay for the program, 3 million taxpayers would be required to pay an additional $1,000 in taxes this year for the estimated 700,000 cars sold under the program.

 

This program is just one of the reasons the Obama administration has had to increase its estimate of the cumulative federal deficit for 2009 to 2019 to $9 trillion. That is up $2 trillion from May and the new estimate from the White House has ”the public debt doubling by 2019 and reaching three-quarters the size of the entire national economy.”

 

Perhaps the Cash for Clunkers program will help reach the new car-mileage standards the president announced in May that are designed to reduce greenhouse gas emissions. Democratic Senator Dianne Feinstein of California was quick to claim that the Cash for Clunkers program has been worth increasing the deficit because it will improve the environment. Unfortunately, environmental benefits are limited and the federal government greatly overpaid for the benefits of increasing gas mileage. University of California at Davis economist Christopher Knittel estimates that the program “is paying at least 10 times the ‘sticker price’ to reduce emissions of the greenhouse gas carbon dioxide.”

 

Well, then maybe this is a good demonstration of how the Obama administration can design and run government programs like its health care reform proposal. Sorry, but the Transportation Department was unable to keep up with the applications from car dealers, even though an additional 1,100 employees ¾ including employees from the FAA’s air traffic control unit ¾ were added to administer the program. Car dealers are wondering when they will get their money from the government and some car dealers in New Hampshire required buyers to pledge to cover the rebates if the federal government does not pay up.

 

Tony Sagami, an analyst for Weiss Research in Jupiter, Florida, sums up the president’s design and handling of the program by saying, "Obama may be the greatest presidential orator of all times, but he knows squat about economics."

 

Obama’s lack of economic knowledge will harm Americans for generations because the “success” of his expensive and ill-conceived Cash for Clunkers program is really only in his imagination.

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