The Significance of the ‘Clunker’ Program

Posted August 7, 2009 at 1:42pm

Nothing more clearly illustrates our descent into the netherworld of quasi-socialism or “crony capitalism— (thanks to Fred Barnes) than the “cash for clunkers— program. Congress has added an additional $2 billion to the $1 billion already approved for cash incentives for lucky buyers to trade in older autos for more fuel-efficient vehicles.[IMGCAP(1)]As economic policy, this is a terrible idea on several levels. Many of the purchases would have been made anyway, albeit a few months down the road. Perfectly good vehicles that could be given to the working poor must be scrapped according to the terms of the legislation. Given our experience with subsidized mortgages, can we be sure these lucky buyers are credit worthy? Where does it end? Why not a similar program for washing machines or dishwashers or RVs?Of course, the program merely shifts wealth to some (lucky buyers and car dealers) from others (taxpayers and used car dealers). No new net wealth is created. As the Tennessee Ernie Ford classic says, “Another day older and deeper in debt.— That’s America now. The program is an economic mirage that merely postpones the day when we are prepared to get serious about cleaning up our economic act.And yet Republicans couldn’t stop it. As one leadership aide explained to me why there was no filibuster, “With every car dealer in the country calling in, we couldn’t sustain one.—That’s our problem in a nutshell. It’s not that those lobbying for the plan, including the auto dealers, are bad people. They are far from it. They’re trying to survive and only acting in what they perceive to be their self-interest. That’s what happens when government assumes the role of economic manager. People come to government with their problems and the result is the endless jockeying for financial advantage in Washington and in state capitals. Political considerations overrule economic ones. Crony capitalism is a zero-sum game: You benefit when someone else loses. In a free market, everyone can win.There is a lesson in this for Republicans. Since the latter stages of the Bush administration, our mantra has been: We lost our way. Give us another chance and we’ll return to our roots of limited government and free market principles.The clinkers program shows us how difficult this will be, but also how essential it is that we do so. Every spending program has its own constituency. Many of these constituencies are conservative Republicans and vote accordingly. Convincing them to forgo their special interest in favor of the national interest and measures for strong economic growth is a daunting challenge.It can be done. Reagan did it. The Gingrich Congress did it. It is not easy, but it’s not too much to say that our economic future depends upon it.Frank Donatelli is chairman of GOPAC.