Sunday, August 2, 2009

Cash for Clunkers

If you haven’t heard the “Cash for Clunkers” phrase before, you might just be living outside of the United States. Briefly, it’s a program where government gives taxpayer money as an incentive for people to trade their older cars for newer, more fuel efficient, cars. The total incentive could be as much as $9,000 per transaction. Almost the entire price of a new, smaller car.

Needless to say, within a couple of days one billion dollars were consumed and sales of those dealerships that qualified spiked as never before.

Liberals cry out, ‘Look, our stimulus works’ as if they want to add, ‘shame on you conservatives for doubting us.’ Conservatives respond, ‘we didn’t doubt it, it’s just not a stimulus; it’s artificial and government interference in the economy.’

What are we to make of this? Who is right?

To see this in perspective, stimulus is like a blood transfusion. It is reserved for those who are in critical need for an infusion of healthy blood. The things that a stimulus and a blood transfusion share are manifold of which one is that it has to be temporary. Only the desperately ignorant would deny the certainty of this. When the stimulus expires, sales will drop because the energy that spiked the sales would have been removed. Stimuli leave no energy to perpetuate the momentum.

There are two key components in any transaction: there must be a buyer and there must be a seller. For capitalism to fire on all cylinders, the buyer must pay with funds acquired having participated in the economy and the seller must supply with goods or services having participated in the economy. This is where socialists have a blind patch on the reality of an economy – a blind patch which they swing around to cover truths that would reveal their true intent. With this stimulus they are holding their blind patch over the necessity of the buyer to participate in the economy to acquire the necessary funds from wages, profits and other participatory means before buying a new car.

In fact, using tax-payer money for a stimulus is worse: it removes the ability of some from participating in the economy and bestows it on those who should be participating, rendering them even less inclined to participate. Armed robbery, theft, embezzlement, and other, easy-money criminal activities cause the same damage.

Conservatives immediately saw the flaws in the Cash4Clunkers stimulus. Sadly, however, I don’t see them articulate the point clearly.

Let’s assume we could make the stimulus permanent, and we could spread it to other industries, too, such as household goods, food, gasoline, and leisure, wouldn’t that permanently stimulate the economy? From the huge spike in automobile sales one could safely reason that those industries would also see huge sales increases, stimulating the entire economy, right? Right.

Well, to make a stimulus permanent, personal and corporate income taxes can be cut to allow the same amount of money as the stimulus to remain with the individual – same money in the hands of the same people, just from an economic source and the freedom to spend it as they see fit, not coerced into buying a car because it's free money. It would also retain the economical participation of both the buyer and the seller and it would take the armed robbery and embezzlement similarities out of the equation. Ergo, a permanent stimulus.

This stimulus has proven that cash in the hands of buyers can do wonderful things. Socialists, however, cannot risk that money be placed in the hands of the buyers through the economic process; it has to come from their hands directly as slave owners in the past provided for their slaves.

2 comments:

  1. I have a problem with the math. Assuming the maximum cash per transaction of $4,500, in order to use up the entire $1 billion would mean that some 225,000 cars were sold. According to the news reports, a total of some 19,500 sales were made under the program. What is the truth? If only 19,500 vehicles were sold, where is the unused money? MK comserv500s@gmail.com

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  2. Hi Morris,
    From my understanding, the $4,500 is only one part of the stimulus. Somewhere matching funds are added, which brings the total to $9,000.

    I didn't check the math because the point was that the stimulus was causing more damage than good, it being tax-payer money in the first place. I tried to prove that money in the hands of the public is a much better stimulus if it is earned instead of handed out without participating in the economy for it.

    Good point, nevertheless.

    Thanks

    Nico

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