Clunkers Program Benefitting Japanes Car Makers Most

As the Senate nears a vote to extend the Cash For Clunkers program with another $2 Billion, they might want to consider the fact that the program is accelerating the domination of the Japanese Car companies.

According to a Reuters story published today:

"Toyota's Corolla sedan overtook the Ford Focus as the best-selling vehicle in the "clunker" program. Toyota had two other passenger cars, the Prius hybrid and the Camry, in the top five. The Honda Motor Co Civic was No. 3."

So 4 of the 5 models of cars being bought in the "Cash For Clunkers" program is going to Japanese car companies. I don't know what percentage of the govenment money is actually making it to the American car companies, but it has to be a fairly small amount. If there's only one model from an American-based car company in the top 5.

Now, I believe that at least some of these car models are manufactured in the US, even though the car company is based in Japan. So there is some econimic benefit to Americans in hose cases, even. But if the purpose of the "Cash For Clunkers" program is to support the American car industry, this isn't exactly an efficient way to do it.

Further more, the article also notes that the majority of the cars being turned in are from the American car companies.

"Vehicles made by U.S. manufacturers accounted for all of the top 10 traded-in vehicles, which is to be expected since rebate terms require the older model get no more than 18 miles per gallon in most cases."

I can see their point. Because 20 years ago the Japanese car manufactures had a much smaller market share, it would be expected that there would be fewer of those cars being turned in. And 20 years ago there were many more Japanese cars getting more than 18mpg than American. In any case, when you take both of those paragraphs together, what you see is an overall trend of people giving up their American cars in favor of cars from Japanese manufacturers. Car buyers are switching brands.

Not that there's anything wrong with that. Every car I've owned has been a Honda and I can't imagine switching. So I'm not about to say people shouldn't be buying Japanese cars. Nor would I dream of saying that the Cash For Clunkers program should only subsidize the purchase of American cars. That would be grossly unfair.

My point is this. What exactly is the purpose of the Cash for Clunkers program? As I noted in an earlier post, the "green" benefit is marginal at best, especially considering the large piles of taxpayer money going into it.

And if the Cash For Clunkers program is accelerating the adoption of Japanese cars, isn't this hurting the very car companies the program is intended to help?

And we're going to spend $2 Bilion more on this program?

Green Benefits of Cash For Clunkers Questioned

From this AP Story on Yahoo:

"As a carbon dioxide policy, this is a terribly wasteful thing to do," said Henry Jacoby, a professor of management and co-director of the Joint Program on the Science and Policy of Global Change at MIT. "The amount of carbon you are saving per federal expenditure is very, very small."

Fairness to the Top 1%

The Tax Foundation announced on their blog recently the release of "Fiscal Fact 183" which analyzes income data from the IRS. The lede from their publication report highlights the state of our progressive income tax:

"In 2007, the top 1 percent of tax returns paid 40.4 percent of all federal individual income taxes and earned 22.8 percent of adjusted gross income. Both of those figures—share of income and share of taxes paid—are significantly higher than they were in 2004 when the top 1 percent earned 19 percent of adjusted gross income (AGI) and paid 36.9 percent of federal individual income taxes."

For folks who like pictures, their blog page illustrates the tax side of the picture with this graphic, which I have taken the liberty of copying to this blog to avoid hotlinking.



Their report is a fascinating read, and given that they get their data directly from the IRS gives it a fair amount of credibility. The Tax foundation even makes the data available on their data download page.

I like the fact that the Tax Foundation covered both the tax and income side of the picture. I think it gives them some additional credibility. I would love to know how these numbers compare to other countries.

I'd also like to know, how far it can practically go and how far people think it should be allowed to go. Is there every a point where someone would say, "Ya know, the top 1% of income earners are paying more than their fair share of tax" Or is a fair tax on the top 1% whatever we need it to be to pay for whatever we need to pay for?

Cash For Clunkers and the Broken Window Parable

The "Cash For Clunkers" program which was passed by the Democratic Party dominated Congress and signed into law by Obama, is getting lots of good press these days, but it's dangerous, destructive to the US economy.

Swarms of people, including a few good friends are rushing to the car dealerships, looking to take advantage of the US Government's free money. Basically if your current car has been manufactured within the past 25 years and it has a gas mileage rating of 18mgh or less the US government will give you up to $4500 toward the price of a new car.

I don't blame people for rushing out and taking advantage of the deal. The government already takes so much of our money in taxes I don't blame anyone for trying to get as much of it back as possible. But the Cash For Clunkers program is very bad, economically disastrous policy. [[]]

The Cash For Clunkers program is a classic example of the "Parable of the Broken Window originally proposed by Frédéric Bastiat in his essay "That Which Is Seen, and That Which Is Not Seen:"

"Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented."

The analogy to the Cash For Clunkers program is fairly clear. In this case, the little boy breaking windows is replaced by the Obama administration which requires that the trade in cars be destroyed. Now true, these are cars that don't get good gas mileage, but they are in service, getting people around from point A to point B. To they are useable and have value. By requiring the cars to e destroyed they are needlessly destroying value just like the little boy in Bastiat's parable is destroying the value of the window.

The consumer who is trading in their old car for a replacement care is just like the shopkeeper. Because his old car is getting destroyed, he has to buy another car. Under the rules of program, the consumer must buy a new car. He can't buy a used car under the program which has already depreciated. He has to buy a brand new car which will immediately depreciate about 20% the minute he drives the car off the lot. And the Obama administration is going to subsidize this folly to the tune of up to $4500.

Both Democrats and Republicans are running around making fools of themselves in the media, telling people how wonderful this program is because it is stimulating the economy. Rep. Candice Miller, Republican from Michigan was quoted by CNN as saying, "The simple fact is that we need to get Americans into car showrooms and this is the bill that will do it." But as Bastiat points out, the Obama Administration and Congress are not taking into account the unforeseen consequences of the program.

Every dollar spent buy consumers to destroy an old but serviceable car and buy a new one is a dollar that could have been spent on something else. The money could have been spent on other durable goods like appliances, electronics and other home improvements that the consumer needed even more. But the $4500 subsidy tempts consumers into buying cars they don't really need instead of other major purchases that they need more So the Cash For Clunkers, creates a subsidy for the car industry at the expense of other industries that are competing for those same dollars from the consumer.

But more importantly, the Cash For Clunkers program tempts people to spend money on expensive new cars, get into debt to pay for them when they could have been using that money to pay down their debts and increase their savings. Buy choosing to drive their clunker for a few more years, they could save money toward their kids' education, pay off the mortgage a little quicker, or have a slightly bigger "rainy day" fund. So the Clash For Clunkers program creates incentives for people to be irresponsible with their money.

And this program is burning through taxpayer cash, according to some reports, to the tune of a $1 Billion a week!

The Cash For Clunkers program is a perfect example of how fiscally irresponsible Congress and the Obama administration is. It's a perfect example of how they use their authority to give subsidies to an industry, sugar-coat it in a green sounding rhetoric, and win the hearts of voters with free money. The attitudes and values exhibited by Congress and the Obama administration in the Cash For Clunkers program should make us immediately distrustful of any health care reform legislation coming they are endorsing.