I think the Cash for Clunkers program is misguided. Yes, it will stimulate the economy insofar as it encourages people to buy cars and keep the auto industry rolling. I don’t think this is the best thing for society as a whole, though.

Given that the current financial crisis was caused by people getting over their heads in debt, having a program that encourages people to buy more and get into more debt seems like a bad idea. People who would have made do are now getting new cars in order to make use of this great offer. Government largesse, however, does not cover the full cost of the vehicles, so many folks are quite likely spending more money than they otherwise would have.

By effectively lowering the retail price of the vehicles, the government is also distoring the true social costs of car ownership. If anything, car prices don’t reflect all the externalities of their manufacture and disposal. This program is further sheltering individuals from the true costs of their consumption decisions. The cars for which the subsidies apply are supposedly greener, but given that people already have functioning cars, it is not clear to me that the environmental costs of manufacturing new ones and disposing of the old ones are outweighed by the expected gains in fuel efficiency, particularly given that our consumer society gives these cars a very short lifespan before a new model “must” be purchased.

Moreover, it is becoming more and more obvious that the environmental crisis is coming to a head and will impose lifestyle changes on us during our lifetime. Now would have been a good time for the government to use this stimulus money not to prop up what could arguably be called a luxury industry that contributes to the problem by promoting an expensive lifestyle, but rather to encourage viable, practical, and attractive public transportation across the country.

For both fiscal and environmental reasons (and arguably ethical reasons as well), the government should be leading and inspiring us to “use it up, wear it out, make it do, or do without.”