Monday, August 3, 2009


I once mediated a dispute in which the owner of a wrecked old car happily pocketed $4,400 from an insurance company for a car he had futilely advertised to sell for $3,500. Silly insurance company. Not to be outdone, President Obama is demanding Congress accelerate a program that has already been paying about $20,000 for old cars that have a value of as little as $1,000wrecked Ford Focus.

Congress says the program has invested our money to pay “only” $4,500 per car in order to do two things:

1. stimulate new car buying (thus saving jobs and auto companies)

2. Take the most polluting cars off the road

For a moment let us set aside the ethics of a business owner forcing taxpayers to cough up a few billion to boost its sales. Let’s do the math that shows Congress and the President underestimate the cost by 450%. All the while they are declaring the program a wild success because it spent the first billion in a week instead of their estimated year, and they are pushing through several billion more in spending.

The car buying web site estimates that every three months of this year Americans would normally trade in some 200,000 older cars without being paid to do it. Since the government will pay $3,500 to $4,500 per old car let’s say the average is $4,000.

So government is forced taxpayers to give $4,000 x 200,000, or $800 million to a few people who didn’t need it in the first place. The remaining $200 million paid for some 50,000 cars. In other words the only real result of $1 billion was removing an extra 50,000 cars. Cost? $20,000 per car.

But wait, it’s even more. Since Americans trade in some 200,000 cars every 3 months, many of the 50,000 cars would be traded in later this year without a subsidy. So the entire $1 billion was unnecessary if Congress could have waited 6 months.

Thus: $1 billion really bought us cars we never had to buy at all. It makes the infamous $5,000 hammer bought by the Defense Department seem like a deal. All the first billion did and all the next billions will do is speed up the trade ins by a few months.

But wait, aren’t there benefits like boosting new car sales and cleaning up the air? Yes. The new car sales, too, would have happened. Cars, like people, don’t run forever and in the recession many people postponed trading in old cars, creating a growing backlog and thus soon-to-be unleashed demand for new cars. Without government “help”.

The car company President Obama and Congress bought, however, is in bad need of money now. So they decided that after giving the company a few tens of billions of your money to keep it out of the hands of private buyers and to save union jobs, you wouldn’t miss another few billion.

Wasn’t this the President who said he would cut the budget by getting rid of programs that didn’t pay their own way? Now he is not only creating them, but hailing them as a success and demanding Congress act fast and give us more of that success.

As my own Congressman, Peter DeFazio says on his web site, “I am aware of the abuses to the earmark process and have serious concerns about some of the wasteful spending in Washington.” Just some of the wasteful spending?

Only politicians could conceive of good investing as spending billions of someone else's money on something that would happen anyway and declare the loss a success. No, wait, what was the name of that guy that kept losing other people's money and calling it success--Bernie Madoff?

1 comment:

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