David Rosenberg: 'Clunkers' Exposes Government Stupidity

david rosenberg fast money

Gluskin-Sheff economist David Rosenberg has some harsh words about the Cash For Clunkers program in his daily letter:

We couldn’t believe this when we saw this quote from the U.S. Transportation
Secretary (Ray Lahood) in yesterday’s NYT (page B3) on the “Cash for Clunkers”
program: “There obviously is a real pent-up demand in America … people love to
buy cars, and we’ve given them the incentive to do that.  I think the last thing that
any politician wants to do is cut off the opportunity for somebody who’s going to be
able to get a rebate from the government to buy a new vehicle.” 

Are you kidding me?  If there is pent-up demand for autos why do we need a
rebate?  If there are 20% more vehicles than there are licensed drivers, why
the need to perpetuate this cycle of overspending?  Why is it a politician’s job
to create incentives to spend?
  Shouldn’t they be focusing their attention on
health, education, defence, infrastructure, public safety, job skills and
productivity growth (and perhaps the youth unemployment rate of around
20%)?  We’re not exactly espousing an Ayn Rand libertarian view but at a time
when the deficit is running at 13% of GDP, at what point is enough?  These
rebates are not manna from heaven — it’s a future tax liability to hasten a
decision that the auto buyer would have made in any event.  This is fiscal
policy short-termism at its best (we say this as we read the article on page B5
of the NYT — $2 Billion in Grants to Bolster U.S. Manufacturing of Parts for
Electric Cars
).  

As a sign of how distortions are created when the visible arm of government
intervenes and chooses to subsidise a form of spending, see Clunkers Plan
Deflates Mechanics on page A4 of the WSJ.  

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