Cash For Clunkers Suspension

Currently Sources are saying that the "Cash for Clunkers" program has been suspended due to a backlog in the system. A good preview of why can be found here.

I believe that this would make a nice Mises daily article especially since that analogs can be drawn to many of the items consistently covered on this site, including;

1) ABCT - Essentially a $3,500-$4,500 "credit" is money at a rate of less than 0% (0% if it was a loan - negative since people don't have to pay it back). The manipulation of credit in this manner has the potential, especially if the program was carried over a longer term, to severely malinvest labor and resources in the auto industry. This malinvestment would take the form of increased labor, research, tooling, etc based off of a false, inter-temporal, demand. Once the program is terminated (or even if it is not and all of the older vehicles targeted by this program are removed from the market) the malinvestments would show their faces by a sharp drop-off in car sales - surely to be solved (in the governments eyes) by ever increasing the amount of credit supplied to the new buyer - which would be the only way to perpetuate the malinvestments caused by the program in the first place.

2) Government bureaucracy - In the article, the dealers are complaining about poor government management and red tape. Obviously, for the program to work as intended, a huge force of people would need to be hired to manage the system (adding to malinvestments as well).

Additionally, huge analogs of this system can be drawn to the much larger issue of government healthcare that it being much debated in Congress.

I hope someone takes it up, especially since contributors on this site tend to turn out very well written pieces in such short time that I wouldn't be able to compete. Division of labor rules again!

P.S. I do believe that you need to add the word "malinvestment" in the spellcheck dictionary for the site (or does it use the local dictionary?) cause it would seem Mises.org dosn't understand Mises!

You can analyze the problem from a less complex perspective of that the ABCT. In this case, it's a form of the thrift paradox fallacy, in which it's assumed savings in the macro sphere of the economy is detrimental despite it's obvious boon for those who partake in saving for future investments and/or expenditures. Thus, people are being 'incentivized' to spend money that they may have never had with the addition of the "Cash for Clunkers" voucher, instead of saving or investing said monies (sans voucher).

I agree that you can analyze this in other ways. However, I find is specifically useful to use the ABCT perspective because it illustrates how manipulation of credit, absent a central bank, can still cause malinvestments. This would be another response to critics that try to refute the theory on the basis that prior to 1913, when no central bank existed per se, business cycles still existed.

Well the House of Congress has just voted 2 billion more to this stupid program.  That is $2x10^9/1x10^8 public sector tax payers or about $20 per wealth generating tax payer.  That is also about $6.5 per person.  All of this is of course new debt.  So it is coming from new dollars.  But don't worry, we have to pay it back to ourselves.

 

Bogart:

But don't worry, we have to pay it back to ourselves.

As long as we owe ourselves, we'll never go broke!  Right?!

So the newspapers here in Michigan are going crazy with how successful this program apparently is. They view the fact that the program is out of money as evidence of excellent "economic stimulus" at work. Politicians are using the fact that they misjudged "demand" as a positive and as a pretext for more money. Mind boggeling. And when do these programs end? I fear that this crisis ill be perceived to be "never-ending"; leading to all sorts of crazy ideas from DC. Why can't people see this for what it is? If you take this program and apply some hypothetical situations, like what happens when there are no more "clunkers" to turn in as defined by the law? Auto demand will fall off a cliff and the industry will go in the tank again. This is a band aid paid for by any taxpayer that doesn't buy a car. Quite frustrating indeed.

Any data on the effects in Europe where they do this already? Id like to see how ABCT parallels it.

JB1122:

So the newspapers here in Michigan are going crazy with how successful this program apparently is. They view the fact that the program is out of money as evidence of excellent "economic stimulus" at work. Politicians are using the fact that they misjudged "demand" as a positive and as a pretext for more money. Mind boggeling. And when do these programs end? I fear that this crisis ill be perceived to be "never-ending"; leading to all sorts of crazy ideas from DC. Why can't people see this for what it is? If you take this program and apply some hypothetical situations, like what happens when there are no more "clunkers" to turn in as defined by the law? Auto demand will fall off a cliff and the industry will go in the tank again. This is a band aid paid for by any taxpayer that doesn't buy a car. Quite frustrating indeed.

It just amazes me.  The government, in essence, just destroyed one billion dollars worth of product.  What company, in its right mind, would destroy 1 billion dollars worth of product?  Such a fucking joke.