Cash for Clunkers?

So is there anyone else in the same boat as me who thinks this ‘Car Allowance Rebate System’ (CARS), also known as Cash for Clunkers, is another poorly constructed government solution? For those of you who don’t know what it is, the government is offering up to $4,500 toward a new car if your old car is less than 25 years old. If your new car gets between 4 and 10 MPG more than the old one, you get $3,500; if it gets more than 10 MPG more than your previous vehicle, you get $4,500. This is supposed to stimulate Americans to buy new, more energy efficient cars—which has proven to work already.

However, in an economy that is suffering all around, throwing in a billion dollars to help one industry surely does not sound like the proper solution. What is the purpose of focusing on one failing industry when doing so will only help increase inflation and hurt all the others? This seems all too similar to subprime mortgages…

Okay, so this is how it will work. When you buy a car, you must put down a certain amount of money in order to drive away with the car (a down payment, if you will). This down payment has been a huge deterrent of people buying cars who can’t afford them. To clarify, someone who can’t save up $5,000 as a down payment over a period of time cannot afford to make payments on a car. What will happen now is that that $4,500 will turn a $5,000 down payment into a $500 down payment—hence, people will begin buying cars they can’t afford. What will this do to the economy when people cannot make payments on their cars? What will happen to the banks when people cannot repay loans taken out to pay for a car? Good thing that people can efficiently drive to the supermarket now—too bad they can’t afford milk.