Thursday, August 6, 2009

Clunker Consequences

The cash for clunker’s program has been proclaimed a “success” by politicians lining up to take credit, to show their constituents that they know how to sprinkle a little money on the little guy, a mere $3 billion when it is all said and done, while $trillions go to Wall Street in one form or another. But, as with many of these bailout programs, when the government steps in, there are unintended consequences, some of which can’t be seen until the deed is done. Clunkers Plan Deflates Mechanics proclaims the Wall Street Journal. While car dealers are delighting in their windfall, 164,000 auto repair shops, as well as their suppliers, are left with less work. As one spokesperson pointedly said: "How do we get on the special interests, special treatment bandwagon? How much is it going to cost me and to whom shall I send the check? Who picks the winners in this game 'cause obviously the game is fixed."

And that in a microcosm is the downside of this approach to “fixing” the economy. Cash for clunkers might save some jobs, but at the expense of others. Also, the government has succeeded in doing what public corporations have long done – accelerating sales to make one quarter look better than it would otherwise. Wouldn’t these clunkers have to be ultimately replaced anyhow? Merely moving these sales forward does not fix the economy or create permanent jobs and as many automotive repair shops are independents, it certainly hurts small business. But it may make some politicians look good for a little while.