Cash for Clunkers: Artificial Boom and Environmental Disaster

In his latest column Ron Paul exposes the “Cash for Clunkers” program as a misguided attempt to help the auto industry while ignoring the economic and environmental impact of destroying a huge number of functional cars. Once the artificial boom in auto sales is followed by the inevitable bust, baffled Keynesian government officials will be tempted to print even more money in an absurd attempt to fix the problems they themselves created.

Cash for Clunkers

by Ron Paul

The Cash for Clunkers program has received a lot of attention last week on Capitol Hill and across the country. The program offers a voucher of up to $4,500 in federal funds to anyone who trades in a working used car for a new one with better fuel economy. Congress was shocked at how quickly people responded to promises of free money and drained the program, while car dealers have been equally shocked at how slow and arduous the government’s website to claim the rebates has been.

It’s not a shock that people respond to incentives. The program has been deemed a resounding success, and Congress has authorized 2 billion more taxpayer dollars for it. But not everyone is happy about this. Low-income earners who would have been in the market for those perfectly serviceable, working cars will have fewer to choose from, and those cars will probably be more expensive than they normally would have been. Automotive repair shops actively lobbied against this program, as it will destroy many of the cars they would have repaired. They were out-lobbied. And of course, Americans as a whole are hurt, because this additional bailout of auto companies comes at our expense through inflation.

I have introduced a somewhat similar bill that would have provided a much better alternative to Cash for Clunkers because it does not rely on increased government bureaucracy or spending. My bill HR 1768 provides tax credits to people trading in used cars for new cars with better fuel economy. There is a big difference, in my mind, between letting people keep their own money versus giving them someone else’s. It is clear which one a free and fair society would choose. Not only that, but my bill would not have required working, serviceable cars to be destroyed for scrap metal.

Cash for Clunkers is a popular program right now, but in the larger scheme of things it does very little towards accomplishing its stated goals. Requiring cars to be destroyed and new ones made to replace them might help the auto industry in the short run, but any improved fuel economy will not make up for the environmental impact of junking one car and making a new one. So this is not a program that should really make environmentalists happy.

There is also much evidence that the boost in demand for autos, that has made dealers happy, is just borrowed demand from the past and the future. In other words, many have put off purchases they would have made anyway because they were waiting to see what the government would do. Others who would have waited a little longer to trade in a vehicle are accelerating their decisions so they can get in before the money runs out. So I would not be surprised to find that this artificial boom in auto sales is followed by an extended drop. This should serve as a very tangible example of how government meddling in the economy creates booms and busts. While everyone loves the booms, the busts are what creates the crises that government thrives on, and that is what we really need to watch out for!


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  • Shirish Shah

    THe entire Fed Reserve is a scam, the biggest scam in the world is money, we meaning majority have to work and slave our selves to survive while all they do is print it or enter any digit they want in their accounts to have what we call money. THe big banksters run the show, a printing press is a power no one seems to understand. To take this down to make it real and workable system for equality seems impossible because we are born and raised in this system where we cant imagine or function without it. EVERYONE SHOULD LOOK UP THE VENUS PROJECT!!!

  • Political Watch

    Cash for Clunkers is not going to be effective. People who bought cars now have a monthly payment that many didn’t have before, therefore, cutting their spending on other things which will affect the economy. That will affect more businesses to have to cut workers because of the lack of demand. If those employees happen to be people who bought new cars….guess what? That’s right, they will stop making car payments because they can no longer afford it. Why is this so difficult for people to understand? It’s simple logic, folks!

    And James D, WHAT does this have to do with health care? Is Canada the leading country in medical innovation and disease cures? Oh, that’s right, they aren’t because they don’t have any private companies striving to make better medical equipment, drugs, etc. because there is no longer an incentive with a govt. run program, people can just go to the US for better health care.

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  • Those that don’t cheat, will never get ahead. That’s the rule of life. Corruption is every where.

  • Karla

    those that don’t cheat, will not get ahead. That’s the rule of life. Corruption is everywhere.

  • longshotlouie
  • VR

    Fresh Link – Bikers vs Bankers

    3rd Week in September

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  • James D

    OK, those are some interesting arguments against a publicly run system. But I’m from Canada (eh?).

    Lots of illusions about our ‘evil’ ‘socialized’ medicine up here.

    I’m a healthy guy but, if I do have a medical issue, I call my local doctor (and I can choose ANY doctor in the whole country – that’s MY choice – the only barrier is whether they can take on another patient). I get an appointment at my clinic within a day or two.

    If I need urgent care and can’t get an appointment, I can go down to ANY community clinic, wait a couple of hours and see a doctor today.

    Emergencies? I call an ambulance, go to an emergency department of a hospital and see a doctor ASAP. Waiting is determined by how urgent my medical condition is. Heart attack? Instant care.

    I see a top eye surgeon once a year to monitor a possible serious condition. Cost? If I didn’t have a dime he would give me the same service as the Prime Minister (the head of state in Canada).

    I love our system here. Do we pay for it in taxes? Yes. Is the whole system expensive? Yes. But it is 1/2 of the cost per person it costs in the U.S.

    Why do I like it? Because I believe health care is a fundamental right (not a privilege). I know, that no matter what happens to me financially, no matter how old I get and how much medical care I truly need, no-one but my doctor and I will determine what medical tests and care I need. That’s the key in Canada. No medical corporation stands between me and my doctor. No big company profit-minded manager with no medical training determines if I will be denied medical procedures. No. My doctor, who has over 10 years of medical study, does that.

    But wait. It’s not all rosy. Wait times? Sure. You wait for non-life threatening operations – that is something that needs to be improved. But, if you need an urgent operation – you move to the top of the line.

    That is the truth here that is often not stated about Canadian health care. If you need urgent care, you get it. Period.

    Oh yeah, that lady on US TV saying she had to go to the US to get her brain operation? Maybe it was as urgent as she states. Maybe not – she didn’t want to wait in any case.

    And no-one tells you that she sold her house and paid $100,000 to pay the US bill for the operation. She would have paid $0 in Canada. She’d still own a house. And what if she didn’t have the $100,000?

    Okay, that’s my 2 Canadian cents. As a Canadian I feel blessed to have universal health care. I feel honored to pay for that in my taxes.

  • James D

    I’ve been a big Ron Paul supporter on his economic policies and this scheme is a very bad one indeed.

    But I have become recently dismayed by his supporters lack of empathy for the environment – they appear to believe that people’s jobs, for example, should be maintained even if a whole endangered species of animal is wiped out.

    Do we really want a world where we are the only creatures on the planet with great jobs and surrounded by nothing but technology?

    Another puzzle is the Ron Paul opposition to health care as a government-run system. What about firemen? Should that be private? Should your house burn down because you didn’t pay for fire protection from private firefighters? How about police services? Don’t pay and we won’t protect you or your neighborhood?

    Ron Paul has no quarrel with government-run police services or firefighting, but when it comes to your basic health, well, you’re on your own pilgrim!

    There is a logical inconsistency in these positions. Who among you will address this issue?

    • Michal

      That’s the difference between “minimal state” and anarchocapitalism. Ron Paul is adherent of the first, though you may call that inconsistency, Ron Paul’s arguments against health care are clear: it’s ineffective, expensive and useless. It harms almost everyone and benefits only few chosen.

      The thing with enivornment, police etc. is easy to solve – most of the people care about environment, want police and fire departments to protect them and have no objections when their taxes are going to these institutions. Their transformation to private institutions wouldn’t be painful, as people trust them anyway and are willing to fund them.
      Health is a much more complicated issue – compare the number of people you know are concerned with the ineffectiveness of their fire department to the number of people who are afraid to go to hospital 🙂

    • Gale

      Fire and police are run by the local government, except state police which are obviously run by the state. Nothing wrong with state and local government, considering what little power they have anyway. The problem is big government. We don’t need big brother to figure out healthcare for us. Go look at other countries with socialized health care and see for yourself if it’s any good. You will still be paying for it–with half your income being taken out for taxes. The difference will be your freedom of choice will be gone, you will have to wait months to see a doctor, and yes, your elderly parents will be put in the back of the line. Why? Because elderly healthcare is the most expensive. They have tons of health problems that need lots of medication and subsequent visits. You can’t expect tax payers to come up with enough money for that and THAT is why no matter what Obama tries to tell you, the old and young WILL fare the worst. Stop putting your trust in big government. They aren’t there to save you. They aren’t your friend. No one is saying healthcare is good as is, they are only saying it’s better than socialized healthcare. Do you like the service at the post office? How about the DMV? Think about why they are the way they are–because they can be. They don’t have competitors, not even the post office. How many of your bills, cards and letters come through UPS? I bet none. Do you want your healthcare providers to take on that attitude? If anything, there needs to be more competition in healthcare. Start with pharmaceutical companies so the cost of medicine will go down. Get more companies in the business of selling medical supplies and equipment so that too will go down. I work in an ER. I’m constantly told to be thrifty with supplies because of how much they cost. Then perhaps that will trickle down to insurance companies. Just something to think about.

    • Giles Martin

      On the environment? For the most part it’s worthwhile to avoid damaging it. Where the difficulties arise is among those that insist that something be done and now, before any legitimate and comprehensive data is gathered and analyzed. We are generally missing a definitive cause, failing to perform cost/benefit analyses, or studying any fallout from prior legislation. There’s also a general ignorance displayed; we ban things outright out of hysteria when other nation states have done those things to no ill effect for some time.
      We cannot push industry beyond it’s ability to adapt. This causes large, establishe and profitable domestic firms to bankruptcy and beyond.
      Do you like burning corn based alcohols mixed in your petrol? Hey, it raises the cost of corn – increasing the cost of keeping livestock. Hello, this is a situation wherein the large agraconglomerates prosper and we pay.
      A broadbased government health care system? Most likely not in our lifetimes.
      It’s much the same with every other thing some want. The US requires a slow and thoughtful evolution into a stable and prosperous nation, following decades of abuse. Please note that this is a Republic – whether we vote or not, it’s our fault. At any time we can just learn a little bit more before we ask for something, give up a few little perks we don’t need…

      None of you are truly stupid. Any of you that can read the lead articles and legitimate responses can read the summary at the end of a research study – avoid those financed by special interest groups and the government.

      Ah, “all apologies” (ILM: RIP, Mr C)

      Giles Paul Arthur Martin.

  • VR

    3rd Week in September

    Spread The Word

  • Freemenright!

    Cash for Clunkers is another way that the government has loaded more borrowing onto the tax payer!!. As Mr Paul correctly points out this will have a limited effect on the long term real economy and will only have deepening effect later as the first traunch of funding runs dry and even if the programme is extended it will reach saturation point if it goes on long enough thus bringing a prolonged period of slow sales to follow the rush while you can get em mentalility.
    A similar programme has been reported as successful in the UK and has also exceeded expectations?
    The Uk has also been involved in Quantative Easing or ‘printing money’ to stimulate the flat and possibly worsening economy. However to date although the BoE has printed or will shortly complete 175 billion in new isssue!! This has also not helped the UK economy and further more nobody seems to know why it hasnt or what exactly has happened to all the money???

  • Michal

    Simple logic, yet most of the people are unfortunately even more simple…

  • Wonderful article! But you know, I can’t help but wonder–what’s the real reason behind this CARS program? Is it really to stimulate the economy? Did no one who planned this think further ahead than next month? In an economy where people can’t afford their monthly payments on anything, the government is encouraging them to turn in their automobiles which are most likely paid off or nearly paid off, and purchase a new $30,000 vehicle. Are they slowly trying to push us into more and more debt on purpose?

  • Guillotine

    Looks like another bill that Ron Paul WONT pass.

    • Herewe Goagain

      Strange post, Gui

      I’ve never heard of a single congressman passing any bills.

    • Lancelot

      Yea i dont get what your saying, it doesn’t make any sense no matter how any one reads your comments.