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A little statement from an article titled “Cash For Clunkers”: Did It Work? got me wondering about the fate of three hundred million dollars.
When the $3 billion is exhausted, roughly 600,000 vehicles will have been swapped for more fuel-efficient models, based on statistics released from the government so far.
Do the math there and we find that if every single “Cash for Clinkers” deal returned the maximum $4500 to the person trading their car in there was still another $500 paid by the government for the deal. For 600,000 cars that makes $300,000,000 that went into someones pocket. (This does not count any other hidden costs of the system which may never be revealed in losses to other businesses or interest paid by people who already had a working vehicle that they owned outright.) I’d like to know how much of it went to dealers, how much went to paying for the destruction of the “clunkers” and how much was government setting up a website and processing paperwork.
One thing is for sure, we have a huge double standard operating when insurance companies are considered greedy when 2% of their gross income is profit while government is considered efficient when only 10% of their cost goes directly to program overhead.
3 replies on “Money Down the Drain”
Good points
This is another example of government math. Generally, the success of a government program or economic event considers the multiplier effect to determine how much of an impact there is to the economy. For there to be a positive economic impact there must be a multiplier effect of greater than 1.0. I’ve seen some arguments that suggest the multiplier effect of events such as the Super Bowl will have a 2.0 multiplier effect.
But as you point out, with $300,000,000 of the $3 billion going to administration of the plan, this program starts out with a .90 multiplier. Now there may be some additional impact in the local economies. But even so, it starts out by costing more than it will contribute. Government math at its best.
This program is even further limited to its ability to impact the economy because Congress came up with the brilliant idea to not allow the traded in clunkers to circulate through the used car markets, which is normally a very important market in the automobile industry. I suspect this was done so as to not limit demand for new cars that need to be made by union workers–but that is an unsubstantiated suspicion.
The only way I have been able to rationalize any of this Clunkers program is with the idea that if the taxpayers would not have been taxed in the first place, they may have had more disposable income to use on car purchases. Some may complain that Congress used taxes to buy Joe the Plumber a new car, but at least it went into something that might impact the economy rather than into social programs that have absolutely no effect on the economy.
But hey, I am not an Ivy League economist or an Washington intelligista. I’m just a schmo who has witnessed 50 years of government programs that don’t work only to be replaced by a bigger government program that works even worse. But what’s $300,000,000 to the current Congress–it represents only .04% of the Stimulus Bill and only .03% of the $1 trillion cost of Health reform. These rates are about 50% of the percentage of petty cash to total cash at my company. Congress and the Administration have completely lost any sense of what zeroes means anymore.
Sounds like we are being governed by a bunch of Romans (who had no idea of the concept of zero).