Sunday, August 2, 2009

ABOUT A MONTH ago, we ventured a prediction about the federal government's "Cash for Clunkers" program, which offers motorists up to $4,500 to trade in their old cars for new, more fuel-efficient models: "When the program's initial round disappoints, as seems likely, pressure will mount to expand it." Sure enough, Friday, with car dealers and consumers complaining because the first $1 billion in car-buying aid was about to run out after four days, the House of Representatives approved another $2 billion. The issue may move to the Senate this week.

Admittedly, we expected the program to be undersubscribed, not oversubscribed. But the latest turn of events hardly proves the program a "success," as its proponents now claim. It merely shows that Washington could bribe more people into purchasing new cars than many thought possible. And the essential flaw of "Cash for Clunkers" has been confirmed: Once Congress starts passing out free money for cars, it's hard to stop. Will the next $2 billion be the last? Or will car dealers and their customers demand even more when it runs out? Maybe the government should just buy everyone a new car. That would certainly "stimulate demand." The washing-machine industry could use a boost, too; older models waste water and energy. So how about cash from Uncle Sam for washer upgrades?

You get the point. Stimulating the economy through more government spending and tax cuts is a much disputed idea. But at least a tax cut or an increase in unemployment benefits puts money into the hands of consumers generally and lets them decide how to spend it, rather than having the government choose which sectors of the economy will benefit. "Cash for Clunkers," by contrast, redistributes demand, as between cars and other goods, or between various models of cars. Car-repair shops, parts stores and used-car dealers suffer. People who would have bought cars next year are buying them now: What will the government do when 2010 sales are deemed impermissibly low?

As for the plan's purported fuel savings, those would have been achieved much more straightforwardly through a modest increase in gasoline taxes. To be sure, raising gas taxes would require Americans to accept some sacrifice for the public good, whereas "Cash for Clunkers" both encourages and exploits a different sort of mentality. As car shopper Alvin Lee of Burlingame, Calif., told CBS Radio: "To me, it's a big waste of taxpayer money. But if it's there, I'll take it."

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