How Cash for Clunkers Destroys Wealth

Conn Carroll / August 24, 2009

The Obama administration’s Cash for Clunkers program is supposed to run through 8 PM tonight, but as the Wall Street Journal reports, dealers across the country are ending their involvement early. The reason? “They worry that if a last-minute rush to enter applications jams the system, they will be on the hook for rebates already given to customers.” And dealers have every reason to worry. Last week the National Automobile Dealers Association reported that the nation’s car dealers have already submitted $3.3 billion in “Cash for Clunkers” claims despite the fact that the Obama administration has only secured $3 billion in deficit spending to cover the program.

It will be interesting to see what happens to those already-struggling auto dealers who are left holding millions of dollars in Cash for Clunkers claims when the Cash for Clunkers fund dries out. What we do know, however, is that the program has already caused an unprecedented government sponsored destruction of wealth. Associate Professor of Economics at the Naval Postgraduate School in Monterey, California, David Henderson explains: (more…)