There's plenty to dislike about "Cash For Clunkers," the federal program that gives new car buyers up to a $4,500 rebate as long as the new car is marginally more fuel-efficient than the old one. Aesthetically, the phrase is irritating, cooked up by Democratic strategists and tested to death in focus groups. Philosophically, the program misses the mark on several levels.
Sure, the first week of the program, in late July, is responsible for the best sales month the car industry has seen in 11 months, but the impact is artificially inflated. The rebate compresses sales that were at least likely to happen at some point into a small time frame. That aids the Obama administration, which will be able to point to an improved third-quarter GDP as another sign of the national economy's recovery, but won't help sales afterward. After the program expires, sales will probably drop significantly. The only purchases that weren't going to happen eventually are probably by people wealthy enough to quickly buy a new car when the government offers a rebate; they were probably driving newer, more expensive cars than the ones this program is supposed to target. The trade-in program rearranges the pie; it doesn't expand it.
Because of the potential marginal differences in fuel-economy and the program's brief time frame, the environmental effectiveness isn't as deep as it could be. If federal legislators want to coax U.S. car owners to rid themselves of their inefficient cars as one way to tackle environmental pollution and climate change, the best, longest-lasting way to do is raising the federal gasoline tax.
Doing so automatically creates the stable market parameters car makers need to dive into efficient-car production. The tax doesn't have to jump immediately to a certain, intimidating, politically untenable point either. It can increase two cents per gallon per month over a two-year period. People won't notice. Considering oil is a volatile commodity that itself can help produce a recession, the tax can even be partially relaxed when per-barrel prices are astronomically high. In the 21st century, taxes have strictly become a means of raising money to pay for government, instead of also being a mechanism to promote good behavior and dissuade bad behavior. Why can't it include the latter too?
Congress' decision last week, at the Obama administration's urging, to triple the trade-in program's funding from $1 billion to $3 billion creates an alarmingly dangerous precedent. Legislators added the money because extraordinary demand exhausted the $1 billion much quicker than expected. Well, of course it was used quickly. Who doesn't want the government to subsidize the purchase of a new car?
By adding so much more money, Congress creates a precedent for the next time the money is used and car dealers and buyers clamor for even more. Car dealers are a more powerful constituency than one would expect because there are many in every congressional district and they represent some form of down-home, nostalgic Americana. If their industry associations believe business will tank once the program ends, they will lobby forcefully to extend it again. The program's end-date and allocation of money were already arbitrary, making them easy to funge again.
Now that the government is subsidizing car sales, Sen. Richard Shelby, R-Ala., is correct to say, What's next? Socks? Refrigerators? Flat-panel TVs? The financial system had to be rescued to prevent the apocalypse and I'll grudgingly say the same about GM and Chrysler because the unemployment rolls would've swelled to a crushing level if both died. But that doesn't mean car purchases are the logical next step. Federal subsidies should exist for programs that benefit the neediest and broadest swaths of the population -- Medicare, Medicaid, food stamps, heating oil, housing. Industrial policy doesn't qualify.
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