Green Room

Value and Choice

posted at 12:51 pm on August 4, 2009 by

I’ve seen some people try to defend Obama’s ludicrous Cash for Clunkers program as something akin to a tax rebate or tax credit. This is rubbish, and betrays a dangerous misunderstanding of where government money comes from. A better understanding of basic economics would help Americans avoid the kind of snake oil salesmen currently running Washington. If the public school system won’t provide such an education, then it falls to conservatives to explain the basics, in order to build support among the voters for the policies necessary to repair the damage Obama’s madcap liberalism has wrought. We can use the Cash for Clunkers boondoggle to illustrate an important point about the relationship between freedom of choice and value. C4C doesn’t just waste money – like every instrument of central economic planning, it destroys value.

Cash for Clunkers is not a “tax credit” or “rebate” of any sort. In order to be either of those things, it would have to be restricted to those who paid the taxes in the first place. Furthermore, it would have to be awarded progressively, just as taxes are assessed progressively. The top 1% of wage earners pay about half of all federal income taxes, so half of a true “tax credit” would have to go to them. Something tells me we’ll never see a Cash for Jaguars program. Tax credits never work that way. When taxes are collected progressively, but credits and rebates are given in flat amounts – or weighted toward the lower tax brackets – the credits amount to more redistribution of wealth. If I pay twice as much in taxes as you do, but we both receive the same credit, the procedure amounts to a strikingly inefficient way to redistribute my money to you.

Cash for Clunkers doesn’t even have the pretense of being a tax credit. It’s a simple subsidy, in which taxpayers who aren’t selling clunkers subsidize people who are buying new cars. Like all government subsidies, including government aid to the poor, C4C is horrendously inefficient. Various observers have pointed out that a great deal of that first billion dollars in funding disappeared into thin air. On top of the taxpayer loot being stolen and squandered, we must add the value of the cars being destroyed. The final cost of this initiative will be far more than the billions of taxpayer dollars Congress has voted to pump into it. Of course, that funding is more of Obama’s reckless deficit spending, so the final total must be marked up to include the titanic interest paid to service the debt.

To properly appreciate the economic damage of such a subsidy, you must understand that even as Big Government spends these dollars, it is reducing their value. The name of the program is an insidious lie – it’s not “cash” for clunkers. If it was, you’d bring in your clunker, and somebody from the IRS would hand you a pile of greenbacks, or wire the money into your account. The $4500 must be used exclusively for the purchase of a new car, which must meet the conditions set forth by the government. The value of those forty-five hundred dollars is reduced, because you have no choice in how to spend it. Imagine how much further the value of that subsidy would be reduced, if it was only good for the purchase of a specific model, designed to meet the whims of the Church of Environmentalism and sold exclusively by government-owned General Motors.

Suppose you found yourself on a deserted island, with a suitcase full of money. That money would have no value, other than as kindling for a fire, because you have no place to spend it. Now suppose the island is not deserted, but you can only spend your money at a small general store that sells a limited selection of essential supplies. Your money has value in that circumstance, but not as great as the value it would have if you were at home, able to spend it on a wide variety of goods, or invest it to generate more income for yourself.

Subsidies like Cash for Clunkers degrade the value of money by restricting the ways it can be used. All money absorbed by the government loses value this way, because the government will never have the diversity of choices available to millions of free citizens. If the economy can be likened to a vast field of grain, then government spending is a high-pressure fire hose, riddled with thousands of leaks, pumping water purchased on credit from foreign suppliers, and held by a nearsighted madman. The free market is a vast raincloud that stretches for miles. The raincloud is vastly more effective for watering crops than the fire hose.

The destruction of value in this particular subsidy is even worse than usual, because it is a subsidy for the purchase of a product that depreciates with terrible speed – as the old saying goes, a car loses thousands of dollars in value the instant you drive it off the lot. Furthermore, since the C4C subsidy doesn’t completely cover the cost of the new vehicle, the consumer must take out a loan for thousands of dollars to make up the difference – and the interest on this loan, extended over four or five years, will add thousands more to the effective cost of the vehicle. Of course, the socio-economic group most likely to trade in a clunker and make a new car purchase, specifically because of this subsidy, is the group most likely to default on their loans. This particular example of Obamanomics will end up using three billion dollars of deficit spending to cause consumers to take on ten billion dollars in debt – and if the overall delinquency rate of 6% holds for these loans, one of the results will be $360 million in bad debt. The only way to make this money lose value faster would be to soak it in expensive champagne and set it on fire.

The media’s urge to celebrate Cash for Clunkers as some kind of soaring success, because lots of people showed up to buy cars and grab their free money, is evidence to be collected at the latest of socialism’s crime scenes. Socialism is always eager to shine a spotlight on its dubious “successes,” while its victims are buried quietly in the dark. In an economy as large and complex as ours, letting government reduce the value of dollars, by reducing freedom of choice, has catastrophic effects. The difference between even the most intelligently managed command economy, and the immense value produced by the free markets, is the difference between subsistence and prosperity. The current bunch in Washington can’t even manage to achieve subsistence.

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one of the results will be $360 million in bad debt.

But it’s not like bad debt ever hurt anything, right?

/s

Would it be wrong for Ed and Allah to frontpage 3 Green Room posts in a row?

Abby Adams on August 4, 2009 at 1:02 PM

Great work, Doc, as always.

Weight of Glory on August 4, 2009 at 9:25 PM

Suppose you found yourself on a car lot with a big pile of kindling and the the dealer said “That kindling is worthless but I will give you $4,500 for that 86 Crown Vic.”

Would you say “I feel as if you are degrading the value of my money because we are in a field of grain and socio-economic rainclouds are spraying me like a madman with a firehose”

Or would you say…”Sold!

NeoKong on August 4, 2009 at 9:52 PM

Does Doc have his own blog?

fabrexe on August 4, 2009 at 9:53 PM

NeoKong on August 4, 2009 at 9:52 PM

You left out half the equation.

In order to ‘get’ the $4.5k(USD) you have to buy an newer car.

Your logic sounds like a woman, “I saved $1,00(USD) buying this $10,000 (USD) diamond bracelet”, or the gambler who puts 2 grand into the slot machine and ‘wins’ 500 bucks.

Skandia Recluse on August 4, 2009 at 10:07 PM

This comes from a guy who absolutely believes in the Iraq war (which added at least $1 trillion to our debt with very little in return, but he isn’t protesting that) as well as someone who believes Sarah Palin is qualified to be President.

Yep, sound ideas.

But let’s get to the merits, shall we. Cash for Clunkers was an immensely popular program that is essentially a tax credit for people to buy a new car in this downturn.

So, let’s get this straight. A tax credit for ordinary citizens to buy a new car in exchange for an old car. But you guys have a problem with that.

Yep, that’s what socialism in the water will do to you. And when I say socialism in the water I mean being out of your mind.

ckoeber on August 4, 2009 at 10:09 PM

ckoeber (10:09)

Why should my taxes go up so that you can buy a new car cheaper than I can?

Skandia Recluse on August 4, 2009 at 10:13 PM

Where do people think this 4,500 is coming from?

Space?

blatantblue on August 4, 2009 at 10:18 PM

In order to ‘get’ the $4.5k(USD) you have to buy an newer car.
Skandia Recluse on August 4, 2009 at 10:07 PM

Thank you for explaining that difficult concept. All this talk of buying and loans and how to purchase a new car is all so foreign and new to me.
I appreciate the way you and Doc explain it to me by comparing it to something completely different that has nothing to do with cars. It makes sense to me now.

NeoKong on August 4, 2009 at 10:25 PM

NeoKong (10:25) Glad to help. I enjoy enlightening people. Teachable moment and all that.

Skandia Recluse on August 4, 2009 at 10:28 PM

Why should my taxes go up so that you can buy a new car cheaper than I can?

Skandia Recluse on August 4, 2009 at 10:13 PM

Yea! Why should I pay taxes so that everyone can have a government period!

I mean, screw FEMA! People can manage their own natural disasters, dammit!

Me, me, me!

That’s what our founding fathers envisioned, especially when the nation is going through tough times.

ckoeber on August 4, 2009 at 10:36 PM

NeoKong (10:25) Glad to help. I enjoy enlightening people. Teachable moment and all that.

Skandia Recluse on August 4, 2009 at 10:28 PM

I soaked it up like a sponge and I am a better man for it.

NeoKong on August 4, 2009 at 10:42 PM

ckoeber
Non Sequitur, insufficiency response.

NeoKong, I salute you sir [madam, gender non specific]. A most worthy opponent. Itsa shame we can’t be friends.

Skandia Recluse on August 4, 2009 at 10:54 PM

Skandia Recluse on August 4, 2009 at 10:54 PM

Shame not good sir.I consider all men of strong character and stout of heart to be my friend. Of that you can be certain.

NeoKong on August 4, 2009 at 11:05 PM

This is broken window theory pure and simple. If you throw a rock through a window, have you created a job? Trick question – you have made work for someone, but you haven’t created anything. You have set society back by the price of a window, and money must now be spent just to get us back to where we were. There is also opportunity cost, which is the loss of whatever the money might otherwise been spent on, which -would- constitute growth. The only difference here is that the government is encouraging us to replace the ‘window’ first, and then take the perfectly good original ‘window’ out and shoot it.

The program doesn’t even do what it says about reducing emissions, you can trade in a vehicle that gets 12 mpg for one that gets 14 and still qualify (buy American!).

This piece of crap is the most obnoxious, villainous, aggressively stupid act of infamy I can remember, and its only purpose is to drum up business for the fuching UAW and the new union-owned auto companies. Haliburton fuching -wishes- they ever owned this many dumbass bootlickers in government.

Either 1) we really are too dumb to live, or 2) our national character has eroded to the point where we can be bought for $4500. I just threw up in my mouth a little.

wkgdyw on August 4, 2009 at 11:18 PM

Yea! Why should I pay taxes so that everyone can have a government period!

I mean, screw FEMA! People can manage their own natural disasters, dammit!

Me, me, me!

That’s what our founding fathers envisioned, especially when the nation is going through tough times.

ckoeber on August 4, 2009 at 10:36 PM

What is the matter with lefties who cannot see the difference between providing essential services and what the democrats are doing. Fema is arguably an important service, (Police, firefighters, and the military are better ones) and a good way to direct tax funds. C4C is not. It is a waste of money, turning value into debris, all in the name of the environment.

In the end, what you have is lip service only. When the cost of disposal of old, production and transportation of new is taken into account, the couple mpg that are saved pale in significance.

Just another disastrous, short sighted, politically expedient waste of money. Tell me truthfully that watching your hard earned money squandered in reckless fashion by morons is acceptable.

Hugh G. Rection on August 4, 2009 at 11:33 PM

I mean, screw FEMA! People can manage their own natural disasters, dammit!

Yeah! Because it’s such a great idea to give out cash-cards to ineligible people from Chicago and New York City for a flood in New Orleans! And it’s awesome to enable large-scale disability fraud! It’s sweet to allow people to refuse to work by subsidizing their housing for three years after a natural disaster! It’s cool to double-pay people for damages, because they “forgot” to list their insurance payout on the Road Home forms! All at the public expense!

mabryb1 on August 4, 2009 at 11:37 PM

Yea! Why should I pay taxes so that everyone can have a government period!

I mean, screw FEMA! People can manage their own natural disasters, dammit!

Me, me, me!

That’s what our founding fathers envisioned, especially when the nation is going through tough times.

ckoeber on August 4, 2009 at 10:36 PM

It’s a little mind-blowing that you don’t understand the difference between redistribution schemes and paying for essential government services. Did it ever occur to you that there might be acceptable levels of government between statist control of the economy, and total anarchy?

Throw in a few more absurd non-sequiturs about the Iraq War and Sarah Palin if it makes you feel any more comfortable in your ignorance. And, just a reminder: today’s talking points clearly state that you should also accuse me of being a paid tool of the insurance companies, as well as a subversive trying to stir up mob hatred against our beloved President.

Suppose you found yourself on a car lot with a big pile of kindling and the the dealer said “That kindling is worthless but I will give you $4,500 for that 86 Crown Vic.”

Would you say “I feel as if you are degrading the value of my money because we are in a field of grain and socio-economic rainclouds are spraying me like a madman with a firehose”

Or would you say…”Sold!“

NeoKong on August 4, 2009 at 9:52 PM

Ah, once again NeoKong checks in from that happy fantasy land, where the success of a socialist program is measured solely by how many people show up to grab the free money, which appears from out of thin air. Let me run a modest proposal by you: suppose Congress passes a law to hand out a million dollars of free money to everyone who shows up at any Post Office to claim it. I’ll bet that would be the most successful government program ever!

Does Doc have his own blog?

fabrexe on August 4, 2009 at 9:53 PM

Nope, I’m just here in the Green Room, at the kind invitation of the Hot Air gang. You can also find NeoKong and I down at the Post Office, with wistful expressions on our faces. Look for NeoKong’s car in the parking lot – it’s the shiny new fuel-efficient model with the “Honk if you subsidized my new car” bumper sticker.

Doctor Zero on August 4, 2009 at 11:41 PM

It’s a little mind-blowing that you don’t understand the difference between redistribution schemes and paying for essential government services. Did it ever occur to you that there might be acceptable levels of government between statist control of the economy, and total anarchy?

Uhhh, EVERY TAX is a form of redistribution! A tax by definition is redistribution by nature.

So, following your logic every politician that walked the face of the earth that ever voted for a tax is a redistribution/collectivist/socialist.

Let’s make a deal. I’ll agree with every tired talking point about how Obama is an evil socialist who is set on changing America into Russia if you say that Reagan was an evil socialist as well. After all, under Reagan, the top marginal tax rate was around 50%.

Also, he tripled the national debt.

So, what will it be?

Throw in a few more absurd non-sequiturs about the Iraq War and Sarah Palin if it makes you feel any more comfortable in your ignorance. And, just a reminder: today’s talking points clearly state that you should also accuse me of being a paid tool of the insurance companies, as well as a subversive trying to stir up mob hatred against our beloved President.

Doctor Zero on August 4, 2009 at 11:41 PM

I through in the Iraq war because that increased the national debt by 1 trillion dollars and yet not a peep from you guys about deficits and our grandchildren. AND the war was started within a recession.

Sarah Palin is relevant here because, guess what, she supports taxing the shit out of private enterprise! Remember how she takes on the oil companies? On top of that, she takes that money and gives it straight to the people via checks, every month!

But SHE is not a redistributionist. Yet Obama is?

That’d be hypocrisy, Doctor Zero.

ckoeber on August 5, 2009 at 12:01 AM

Yeah! Because it’s such a great idea to give out cash-cards to ineligible people from Chicago and New York City for a flood in New Orleans! And it’s awesome to enable large-scale disability fraud! It’s sweet to allow people to refuse to work by subsidizing their housing for three years after a natural disaster! It’s cool to double-pay people for damages, because they “forgot” to list their insurance payout on the Road Home forms! All at the public expense!

mabryb1 on August 4, 2009 at 11:37 PM

It’s also awesome to focus on the fraud instead of the plight of the people in the face of one of the worst natural disasters this country has faced!

I especially love this line: It’s cool to double-pay people for damages, because they “forgot” to list their insurance payout on the Road Home forms!

Because that is what the public cares about when their fellow citizens are suffering.

How much is their suffering from am obvious disaster they can see with their own eyes going to cost them.

Keep going, guys! You’re doing great!

ckoeber on August 5, 2009 at 12:13 AM

This post has been promoted to HotAir.com.

Comments have been closed on this post but the discussion continues here.

Ed Morrissey on August 5, 2009 at 1:14 AM

..love dat Dr!

Quetzal on August 5, 2009 at 2:27 AM

Mr. Zero, believe it or not many people understand the concept of C4C without the need of you explaining it to them in a very long and tortured analogy with comparisons that don’t make much sense.
If I as the owner of a old broken down vehicle decide that $4,500 is an acceptable or a very generous price to sell that vehicle then to me as the owner that money has great value.
I don’t have to run it by you or someone who needs a cheap used car or anyone else.
The property you or value you speak of belongs to me and whatever I do with it is my choice. Not yours.
You seem to feel that people are unable to make this simple decision unless you explain it to them really slow.

Save your insults for someone else buddy.You are the one insulting hundreds of thousands of people who you portray as foolish and gullible because they saw what they determined to be a good deal and took it.
Some people actually have navigated this harsh and cruel world with some measure of success before Dr. Zero came along and told them how stupid they were to take advantage of a govt. program.
Do you have any problems with any other govt. subsidies,bonuses, rebates, credits or whatever name you care to attach to them…?
What about:
Farm subsidies?
School vouchers?
Home heating oil vouchers?
Enlistment bonuses?
Home winterization incentives?
Economic redevelopment zones?

Even though many people have foolishly gone against your sage advice, when it comes to C4C SOME PEOPLE ARE ACTUALLY HAPPY with their new car and actually understand the mechanics of buying a new car.

I’m going to take a shower now. Are there any safety tips you would like to tell me. After that if I can manage it I will brush my teeth.

NeoKong on August 5, 2009 at 7:22 AM

ckoeber on August 4, 2009 at 10:36 PM

Typical liberal defend a govt program by declaring that those opposed to it don’t want any govt.

Not that any of the govt programs you list could be considered successes.

MarkTheGreat on August 5, 2009 at 7:49 AM

Not that I support this program, but I wonder if this program will help with smog? The oldest cars are by far, the most polluting.

I’ve said for years that a program whereby the govt bought and destroyed old cars, would be more cost effective then forcing all cars to go through emissions checks every year.

The program I am thinking about would have govt agents go to the auctions that dealers use to unload some of the used cars they have bought, and buy the worst of the worst cars. Maybe check all the emissions on all cars presented at the auction, and buy the worst offenders on the spot. Or they could destroy the engines, but allow the rest of the car to be used for spare parts.

MarkTheGreat on August 5, 2009 at 7:54 AM

Even though many people have foolishly gone against your sage advice, when it comes to C4C SOME PEOPLE ARE ACTUALLY HAPPY with their new car and actually understand the mechanics of buying a new car.

I’m going to take a shower now. Are there any safety tips you would like to tell me. After that if I can manage it I will brush my teeth.

NeoKong on August 5, 2009 at 7:22 AM

Z’s argument had nothing to do with whether the program has made people “happy”. As a matter of fact, he was quite clear on that particular subject. A bunch of people ran out to grab their free money and they were subsidized by those who didn’t do so. One of those two groups is “happy” and the other one isn’t. It’s government sponsored theft. Successful thieves are usually pretty “happy”. The victims, not so much.

LibTired on August 5, 2009 at 7:57 AM

I love that comment that “A tax by definition is redistribution by nature.” Classic stuff.

Doesn’t someone who makes a wage identical to mine with 4 mouths to feed have better value from their wages than I do with only two dependants?

ericdijon on August 5, 2009 at 8:05 AM

I remember a program that ran for about 10 years, that inflated the value of something – then was sold at high points, whereas those folks buying got a gravy deal – devoid of their ability to pay for the loan and assess their true net worth.

What could go wrong?

i.e. in 4-5 years, when those horrid made GM cars aren’t worth their book value – for those who paid the life of the loan – will be held holding an “efficient” POS.

Odie1941 on August 5, 2009 at 8:08 AM

Good post, Doc.

reminds me of this:

The American Republic will endure until the day Congress discovers that it
can bribe the public with the public’s money. –Alexis
de Tocqueville

Texas74 on August 5, 2009 at 8:32 AM

You heard it here first folks! Neokong and Ckoeber have expressly given permission to take a portion of their earnings and feel free to give it away as long as it makes the people receiving it happy!

Man it’s fun to think like a liberal!

javamartini on August 5, 2009 at 8:46 AM

Let’s face it.

1. C4C was buying votes.

2. C4C helps “greenie” libs feel like they’ve done something for the environment.

3. C4C just made it more difficult for the young or the poor to buy inexpensive cars (or repair the ones they have).

4. C4C robbed taxpayers who didn’t take advantage of C4C as well as those who did, their children and their grandchildren.

5. C4C did nothing to save energy. Whenever something useful is destroyed and replaced by something new, it’s a waste. That doesn’t even take into account the energy needed to destroy the old engines, and remove the from the clunkers, transport the car carcasses, recycle whatever can be recycled and landfill the rest.

6. All the new cars bought through this program gave a boost to auto sales that will soon take a dive when the program ends. How many cars were sold that would have been bought in the next year anyway without the billions of taxpayer money to sweeten the deal?

Sloan Morganstern on August 5, 2009 at 9:03 AM

Farm subsidies?
School vouchers?
Home heating oil vouchers?
Enlistment bonuses?
Home winterization incentives?
Economic redevelopment zones?

Even though many people have foolishly gone against your sage advice, when it comes to C4C SOME PEOPLE ARE ACTUALLY HAPPY with their new car and actually understand the mechanics of buying a new car.

I’m going to take a shower now. Are there any safety tips you would like to tell me. After that if I can manage it I will brush my teeth.

NeoKong on August 5, 2009 at 7:22 AM

Precisely where do you think the money for those programs originates?

Pro-Tip: It’s not unicorn farts.

Is taking a deal like C4C necessarily a bad idea if you’ve got an old car and could use a new one? No.

Is it monstrously stupid that we’re going into debt and taxing the productive sector thereby reducing our economy’s ability to rebound and expand again so that Mary Jo can buy a new minivan? YEAH, IT KINDA IS.

TheUnrepentantGeek on August 5, 2009 at 1:17 PM