What would you think of a people who borrow $4500 and then burn it so they can save $1000 later?

Does that sound insane? Never happen? Think again; after burning though the first borrowed $1 billion, we can't seem to sign up for the next $2 billion fast enough. Just wrap a good marketing slogan around even the dumbest of ideas, and as a people we will ask to super-size it and call it Cash for Clunkers (Car Allowance Rebate System, officially).

Don't believe it's true? This time you have to watch the video to understand.

I wish my kids had a car that nice...

If you think the sacrifice of the Volvo in the preceding video is the exception, a quick YouTube search will provide you with hours of painful videos of similar footage. Now, for anyone with any common sense, watching this kind of waste is hard enough, but here is the really incredible part: the cars must be crushed or shredded. A dealer caught removing even the aftermarket stereo system is subject to a $15,000 fine.

The CARS Act requires that the trade-in vehicle be crushed or shredded so that it will not be resold for use in the United States or elsewhere as an automobile. The entity crushing or shredding the vehicles in this manner will be allowed to sell some parts of the vehicle prior to crushing or shredding it, but these parts cannot include the engine or the drive train. In practical terms this means the tires, the radiator, and the battery are the only items likely to be removed prior to crushing the vehicle.

How does a program this wasteful ever see the light of day?  The way it was sold to the public was as an economic stimulus.  The program could not get through Congress on its own merits.  Instead, it had to pander to special interests, and the economic stimulus package turned into some bastard-hybrid-environmental silliness.  And remember, it's all paid for with borrowed money.

But the idea of taking "gas guzzlers" off the road just feels so good, how could it be wrong?
As an environmental program, this is a perfect illustration of the victory of what feels good over the truth. It requires much more energy to build a new car than will ever be saved by the new replacement. The cars that are being turned in are not really clunkers per se. They have to be currently registered, insured, and running to qualify. To meet those requirements in most large cities requires them to pass smog inspections, a process that already weeds out gross polluters.

As an economic stimulus, boosting car sales might have some merit. It can be argued that the sale of a car might generate enough economic impact to approach an economic break-even point, but a direct approach could have accomplished this at much lower cost.  What people lose sight of is that these cars have some value. The Cash for Clunkers benefit that the buyer is really getting is the difference between the real value of the car and the government support price.  So great, it costs the government $4500 to give the buyer $1000 benefit on a car with a trade-in value of $3500.  What if they just gave the buyer a $1000 tax credit when they bought a new car?  It would have cost so much less and the money could have generated so much more stimulus.

Not thinking this all the way through is what allowed this program to happen in the first place. The government managed to decrease our national wealth by $8,000 per car by spending $4,000; however, compared to what they spend on hammers and toilet sets, this is probably pretty good work.

Now for just a few things that might have been thought through more thoroughly before "we" spent the money.

Value and Price.

Do the cars in these videos look like they are worth more than $3500 to $4500? Of course they do. In the Blue Book you find several different values for the same car. The lowest of all is trade-in value. This price has to be low enough that the dealer can either wholesale the car to someone else, or sell it for a substantial profit on the lot.  So that car worth $3500 as a trade-in is the one that you and I would have to pay at least $5000 for. And that is why you see such nice cars being destroyed. The car might be worth more to me or you, but the government pays below wholesale.

Trickle-up

How many tax dollars for the Cash for Cars program come from people who can't afford to buy a new car went to subsidize the new-car purchases of people who could?

Trickle Down?

Well at least the lucky few who get this government subsidy will have to pay the taxes on it, right? That would be a negative, folks; the law specifically excludes this as income.

Increased Used Car Prices

The sales rate of new cars has been in the can for a year, but we keep driving, using up our cars and trucks. This is creating a pent up demand for vehicles. Used car prices are already increasing. Now throw in a little government intervention by removing potentially 1.2 million used cars from the mix and see what happens.

No Cars for Those Who Need Them

First, take tax dollars from the people who can't afford a new car, and then drive up the prices of the cars they might be able to afford. We are taking away our children's chance to buy a decent car.  Explain to the unemployed who need a car to go to that job interview that the country is so rich it can throw away the car they so desperately need.

Salvage Proceeds?

Well, at least the government gets the salvage value of what's left after the car is crushed? Not exactly, well, really not at all. The salvage value goes to the seller.

Stupid Is as Stupid Does

Let's just agree that taking a running vehicle with years of useful life and crushing it is stupid.

A Poorer America

America becomes poorer in the process. Only people spending other people's money can see any benefit in such a program. When you destroy a car worth $5,000, and spend $4500 to do it, you end up short the car and the money.

Consider This

What if we had given employers a $3,000 tax credit for each new employee? Instead of killing cars, we would help create 1 million new jobs. And as a tax credit, the money would not be spent until those employers were making a profit and paying taxes. Those new employees would be paying taxes too... But I guess this wouldn't help sell any Government Motors cars now, would it?

Let the Dealers Buy the Cars!

If these cars are so great, why don't the dealers buy them? Right now, dealers need to sell cars. If you want to burn down your old car in the dealership driveway before you buy a new car, they will not stand in your way. Dealers do buy the cars that they can, and we should be thankful for that.

I would write more, but I have to go burn down some houses.  You see, I have this plan to stimulate the housing industry.