May 27 2009

Congress Goes After a Real Clunker of a Program

Awful ideas circulate on Capitol Hill in good times and bad.  But they really take flight during an economic crisis.  Take the "Cash for Clunkers" proposal which would have the government pay you to get rid of your old car.

Congress is preparing to give up to $4,500 to people who trade in their current vehicle and buy a new, more fuel-efficient model.  The old vehicle would be trashed and taxpayers would be out $4 billion.

The idea is bad in theory.  Congress is making it even worse in practice. As Rafi Musher, head of Stax Inc., warns: "Congress followed the same dubious business practices it has been lambasting Wall Street for in designing the legislation.  Indeed, this bill combines the lack of investment discipline that led to the subprime debacle and the biased sell-side research that inflated stocks at the height of the dot-com bubble."

"Cash for Clunkers" is getting an unusually positive reception from some analysts who normally would be skeptical of yet another corporate welfare provision.  That's exactly what the program is.  Taxpayers would be directly subsidizing auto sales.  Ford Motor spokesman Ziad Ojakli exulted:  the legislation "will help jump-start auto sales and the U.S. economy."

The only thing better for the carmakers would be for the government to write a check to them directly-oh, wait, it's already doing that.  Well, from the companies' standpoint, you can never have too many federal subsidies.

There are numerous problems with this idea, the first being that the program would tax some to subsidize others purchase of a new car.  That's a good deal if you've got money and are in the market for a new vehicle, but not if you are among the many who are struggling to survive in today's turbulent economy.  It's also a bad break for anyone who has not clung to their so-called "clunkers" and already invested in a fuel-efficient vehicle.

We have become so used to government subsidizing everything and indiscriminately choosing small segments of industries to reward at the expense of others.   In years past, the public would have recognized that it is fundamentally unfair to make you and me help someone else purchase a new car.  But today few give a second thought to having Uncle Sam play Santa Claus.

It is worth remembering that the national debt already exceeds $11 trillion.  The deficit this year alone will run nearly $2 trillion.  Next year the federal government expects to run up at least another $1.2 trillion in red ink.

The Congressional Budget Office figures that we will add another $10 trillion in debt over the next decade.  And then we have Medicare and Social Security, with a combined unfunded liability of more than $100 trillion.  How can we afford to pay people to buy new cars?

The legislation would also lead to the wrecking of perfectly good vehicles.  They might not be as eco-friendly as new, more expensive cars, but the many used cars on the road provide inexpensive transportation for people who need it.

Taking these autos off of the roads would be pure waste.  The legislation also means reducing the stock-and raising the price-of cars for people of modest means.  If you're sitting in a congressional office it might seem like a good idea to clear America's roads of cheaper, older vehicles.  But it won't sound so good to a student, single mom, or poor family just getting by.

While most focus on the obvious beneficiaries of this proposal-like automakers-other industries would suffer as a result.  Ridding the country of old cars would also hurt used car dealers and used parts sellers.

The bill is job redistribution rather than job creation.  If you make your living providing less expensive cars to lower income people, or used parts to car owners, get ready for a trip to the unemployment office.  Uncle Sam is about to give you the back of his hand.

It also isn't clear that the legislation would improve the environment.  The bill's objective isn't to reduce the number of autos.  It is to replace old cars with new cars.  That means manufacturing new ones!

The current legislation, says Musher: "means manufacturing roughly 300,000 vehicles that we never needed on the planet.  How much energy do you think it takes to build 300,000 extra vehicles?  What initially sounds like a conservation investment would be an environmental liability."

Moreover, the bill will tempt people to turn in rarely used second and third vehicles to get a cheaper, newer car likely to be driven more often.  Even more perplexing, the bill rewards medium fuel efficiency, not high fuel efficiency.

What about president Obama's plan to begin implementing new fuel efficiency standards?  How does this help domestic car manufacturers "prepare for the future"?  Aren't the bureaucrats at one agency speaking to other government officials so their many proposed new programs at least make some sense?

These medium fuel efficiency cars are the very cars which Detroit has in abundance.  If the government wants to push the U.S. automakers to make more of a particular type of car, why is it not targeting those with higher fuel efficiency in the proposed Cash for Clunkers program?

The reason is because this bill is about subsidizing the industry, not improving the environment.  In fact, Senate sponsor Dianne Feinstein (D-Cal.) complained that the legislation emerging in the House was the "automobile industry's version."

Cash for Clunkers is being sold as having something for everyone.  But that's only if you don't bother looking under the policy hood, so to speak.  Musher warns: "This bill simultaneously works against energy independence and provides the wrong incentives for U.S. auto manufacturers."  All while wasting $4 billion of the taxpayers' fast disappearing money.

It's time to banish the Washington presumption that doing something stupid is better than doing nothing.  Congress is about to simultaneously make our budget and environmental problems worse.  That certainly isn't change we can believe in.

Michelle D. Bernard is the president and CEO of the Independent Women's Forum and Independent Women's Voice. She is the author of Women's Progress: How Women and Are Wealthier, Healthier and More Independent Than Ever Before and is an MSNBC political analyst.

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