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Will health care reform be another clunker?

Ben Linskey | Tuesday, October 6, 2009

This summer, the U.S. economy remained mired in a recession as Americans waited in vain for Congress’s $787 billion “stimulus” package to take effect. Faced with the increasingly evident failure of its massively wasteful spending program, the federal government devised a characteristically nonsensical solution: yet another massively wasteful spending program. This time, Congress decided to meddle in the automobile industry with the now-infamous “Cash for Clunkers” program. The government offered car-buyers a $3,500 to $4,500 rebate in exchange for their used vehicles, which car dealers were required to destroy.

The Clunkers program was initially lavished with praise by pundits and the news media – after all, car sales got a boost, consumers got cheap cars and the environment was bound to benefit somehow, even if it wasn’t entirely clear how demolishing thousands of functioning cars qualified as “sustainable.” What could go wrong? Well, as it turns out, plenty. With consumers satiated by this summer’s government handouts, car sales declined precipitously last month. Figures released last week show that government-owned General Motors sold a whopping 45 percent fewer cars last month than in September 2008, while the recently bailed-out Chrysler suffered a 42 percent loss. In the words of G.M. executive Mark LaNeve, “It was a real post-clunker hangover.”

The cause of this precipitous collapse is no mystery. When federal legislators, rather than markets, set prices, inefficiency is the inevitable result. The short-lived frenzy of the Clunker rebates exhausted demand and robbed dealers of months of potential sales. It would be wonderful, of course, if the federal government could arbitrarily lower the prices of goods with no negative repercussions, but that’s scarcely possible in the reality in which we live. As the Nobel Prize-winning economist Milton Friedman would say, there’s no such thing as a free lunch.

Perhaps the most regrettable part of the Cash for Clunkers debacle is that we’re all paying for it. Three billion hard-earned tax dollars were redistributed to those lucky enough to be in the market for a new car in July and August of this summer, while car dealerships were treated to a momentary burst in sales in return for a decline in demand that could last for months. In the end, only two of the top 10 car models purchased under the program were made by an American manufacturer. Worse yet, dealers were forced to scrap the nearly 700,000 perfectly good vehicles traded in through the program. The sheer perversity of this senseless destruction is difficult to comprehend – why would a “stimulus” program mandate the disassembly of hundreds of thousands of functioning automobiles, many of which could have been resold on the used car market? The highly-touted environmental benefits of replacing “clunkers” with new vehicles, meanwhile, have been shown by multiple analyses to be virtually nonexistent.

In the end, Cash for Clunkers proved to be little more than a boon for a handful of lucky car-buyers and an opportunity for legislators to claim to be “doing something” while haplessly chipping away at the U.S. economy. Members of Congress, of course, never consciously aim to harm the very citizens who elected them, but years of misbegotten legislation have proven the inevitability of unintended consequences. Programs that look good in the press rarely deliver the predicted benefits. Instead, Washington’s efforts to manipulate the U.S. economy consistently create economic uncertainty and waste taxpayers’ hard-earned money on ill-considered endeavors.

As the health care reform debate heats up in Congress in the coming days, legislators and constituents will be faced with a crucial question: Can we trust the federal government to extend its reach to a fundamentally important facet of Americans’ lives and to intervene in the U.S. economy on an unprecedented scale? If past events are any indicator, the answer is no. Congress’ attempts to intervene in a limited sector of the economy with the Cash for Clunkers program failed, brining about a variety of unintended negative consequences. Its broader effort to stimulate the economy has done little more than to provide an excuse for hundreds of billions of dollars of wasteful spending. Grand nation-building projects overseas, meanwhile, have been even less successful. The lesson here is clear: No matter how pure its intentions, government is seldom efficient, effective or nearly as wise as it thinks itself to be. Cash for Clunkers was a harmful (but thankfully temporary) setback for our economy. Any action Congress takes to reform healthcare will likely be permanent. Congress has proven that it can’t run the automobile industry, and there’s no reason to believe it will do any better with the medical industry. America can’t afford a healthcare clunker.

Ben Linskey is a junior majoring in political science and philosophy. He can be contacted at blinskey@nd.edu

The views expressed in this column are those of the author and not necessarily those of The Observer.

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The Observer is a Student-run, daily print & online newspaper serving Notre Dame & Saint Mary's. Learn more about us.

-

archive

Will health care reform be another clunker?

Ben Linskey | Sunday, October 4, 2009

This summer, the U.S. economy remained mired in a recession as Americans waited in vain for Congress’s $787 billion “stimulus” package to take effect. Faced with the increasingly evident failure of its massively wasteful spending program, the federal government devised a characteristically nonsensical solution: yet another massively wasteful spending program. This time, Congress decided to meddle in the automobile industry with the now-infamous “Cash for Clunkers” program. The government offered car-buyers a $3,500 to $4,500 rebate in exchange for their used vehicles, which car dealers were required to destroy.

The Clunkers program was initially lavished with praise by pundits and the news media – after all, car sales got a boost, consumers got cheap cars and the environment was bound to benefit somehow, even if it wasn’t entirely clear how demolishing thousands of functioning cars qualified as “sustainable.” What could go wrong? Well, as it turns out, plenty. With consumers satiated by this summer’s government handouts, car sales declined precipitously last month. Figures released last week show that government-owned General Motors sold a whopping 45 percent fewer cars last month than in September 2008, while the recently bailed-out Chrysler suffered a 42 percent loss. In the words of G.M. executive Mark LaNeve, “It was a real post-clunker hangover.”

The cause of this precipitous collapse is no mystery. When federal legislators, rather than markets, set prices, inefficiency is the inevitable result. The short-lived frenzy of the Clunker rebates exhausted demand and robbed dealers of months of potential sales. It would be wonderful, of course, if the federal government could arbitrarily lower the prices of goods with no negative repercussions, but that’s scarcely possible in the reality in which we live. As the Nobel Prize-winning economist Milton Friedman would say, there’s no such thing as a free lunch.

Perhaps the most regrettable part of the Cash for Clunkers debacle is that we’re all paying for it. Three billion hard-earned tax dollars were redistributed to those lucky enough to be in the market for a new car in July and August of this summer, while car dealerships were treated to a momentary burst in sales in return for a decline in demand that could last for months. In the end, only two of the top 10 car models purchased under the program were made by an American manufacturer. Worse yet, dealers were forced to scrap the nearly 700,000 perfectly good vehicles traded in through the program. The sheer perversity of this senseless destruction is difficult to comprehend – why would a “stimulus” program mandate the disassembly of hundreds of thousands of functioning automobiles, many of which could have been resold on the used car market? The highly-touted environmental benefits of replacing “clunkers” with new vehicles, meanwhile, have been shown by multiple analyses to be virtually nonexistent.

In the end, Cash for Clunkers proved to be little more than a boon for a handful of lucky car-buyers and an opportunity for legislators to claim to be “doing something” while haplessly chipping away at the U.S. economy. Members of Congress, of course, never consciously aim to harm the very citizens who elected them, but years of misbegotten legislation have proven the inevitability of unintended consequences. Programs that look good in the press rarely deliver the predicted benefits. Instead, Washington’s efforts to manipulate the U.S. economy consistently create economic uncertainty and waste taxpayers’ hard-earned money on ill-considered endeavors.

As the health care reform debate heats up in Congress in the coming days, legislators and constituents will be faced with a crucial question: Can we trust the federal government to extend its reach to a fundamentally important facet of Americans’ lives and to intervene in the U.S. economy on an unprecedented scale? If past events are any indicator, the answer is no. Congress’ attempts to intervene in a limited sector of the economy with the Cash for Clunkers program failed, brining about a variety of unintended negative consequences. Its broader effort to stimulate the economy has done little more than to provide an excuse for hundreds of billions of dollars of wasteful spending. Grand nation-building projects overseas, meanwhile, have been even less successful. The lesson here is clear: No matter how pure its intentions, government is seldom efficient, effective or nearly as wise as it thinks itself to be. Cash for Clunkers was a harmful (but thankfully temporary) setback for our economy. Any action Congress takes to reform healthcare will likely be permanent. Congress has proven that it can’t run the automobile industry, and there’s no reason to believe it will do any better with the medical industry. America can’t afford a healthcare clunker.

Ben Linskey is a junior majoring in political science and philosophy. He can be contacted at blinskey@nd.edu

The views expressed in this column are those of the author and not necessarily those of The Observer.