Cash for Clunkers and some concerns

Posted by Jacob Johnson on August 9, 2009 under Environment, Politics | Be the First to Comment

Another $2 billion was allocated to the Car Allowance Rebate Program (CARS, Cash for Clunkers) program last week. I have read a couple perspectives regarding the issue such as the approach and accuracy of the fuel ratings, along with the recycling of the “clunkers” (given liquid glass is poured into the engine). A couple issues I have are the implications from an environmental perspective, and the consumer’s ability to borrow money to finance new vehicles.

The first issue regards the funding for this program. Questions arise regarding where the funding stems from as well as what is being sacrificed in order to allocate funds to this program. As Newsweek points out in this article, the Department of Energy will have less funding to spend on new technology for renewable energy initiatives. Personally, I would prefer to see funding spent on renewable energy as I believe that both the short and long term affects are more environmentally beneficial than the CARS program (especially when considering the waste of the “clunker” and what could be extremely marginal improvements in mpg).

The second issue regards personal finances. One of the reasons the housing bubble and the current economic crises occurred is the fact that government provided certain incentives to purchase housing. There was a strong push to get Americans in a house, starting with Clinton (given there are many other factors occurred that caused the current economic crises). Consumers in the residential housing market stretched themselves beyond their means. Unfortunately, the cash for clunker program is an incentive to consume more than what is affordable. The government has now created an incentive (and added another $2B to the program) for folks to trade in a presumably paid-off car that is not worth much, for a new(er) car that requires financing. Given the instability of employment in the current economic climate, it does not seem prudent to increase consumer debt by thousands of dollars. Of utmost concern is the perception that the government is the backstop should something unplanned occur, and I am not comfortable with this precedent (which has already been created with the bailout of the banks) existing any longer.