Remember Cash for Clunkers? This was one of Obama’s grand plans for “stimulating” the economy and the environment by giving consumers a $4,500 credit for trading in their old cars for new fuel-efficient ones. Except the plan didn’t exactly work as expected. Market Watch’s Ruth Mantel reports:
…rather than investing in pricey hybrids, many buyers opted for relatively cheap and small cars, such as Toyota’s Corolla, which was the No. 1 choice during the program, economists with Texas A&M University wrote in “Cash for Corollas: When Stimulus Reduces Spending.” The program ended up cutting industry revenue by around $3 billion in under a year, the researchers estimated.
“This highlights how – even over a relatively short period of time – a conflicting policy objective can cause a stimulus program to instead have a [contradictory] net effect on the targeted industry,” researchers wrote in the working paper from the National Bureau of Economic Research, a Cambridge, Mass.-based organization. “By lowering the relative price of smaller, more fuel-efficient vehicles, the program induced households to purchase vehicles that cost between $4,000 and $6,000 less than the vehicles they otherwise would have purchased.”
The government spent $3 billion on the program, which did speed up buying during its two-month duration. But looking at sales in the following months, there was no net increase in vehicle purchases, researchers found.
“In this particular case, environmental objectives undermined and even reversed the stimulus impact of the program,” the authors concluded.
There’s nothing wrong with working for a healthier environment or economy. The trouble is, government does not know best and cannot possibly hope to manage the purchasing decisions of millions of Americans—even when government hands out billions of taxpayer dollars to motivate them to buy products preferred by the government.
A better approach is letting individuals keep more of their hard-earn money to invest, innovate, and introduce better products and services at better prices. Most Americans want to protect the environment, and with their own resources in hand, they’ll do just that and stimulate the economy in the process.