On Friday afternoon House Democrats and some parochial minded Republicans began plans to refuel the ill-conceived cash-for-clunkers program after it was revealed that the program, which was set to expire in October, had already run out of money. Now, I know what you’re thinking … another billion dollars thrown onto the national debt is hardly worth mentioning given the price tag on the legislation coming out of Washington these days. So what is worth mentioning? As I watched Democrats and several Republicans celebrate the program’s success a question came to my mind: What is the cash-for-clunkers program incentivizing? As a financial nut I’d like to quote the following section from a book I recently read,
“Taking on a car payment is one of the dumbest things people do to destroy their chances of building wealth. The car payment is most folks’ largest payment except for their home mortgage, so it steals more money from the income than virtually anything else. USA Today notes that the average car payment is $464 over sixty-four months. Most people get a car payment and keep it throughout their lives. As soon as a car is paid off, they get another payment because they “need” a new car. If you keep a $464 car payment throughout your life, which is “normal,” you miss the opportunity to save that money. If you invested $464 per month from age 25 to 65, a normal working lifetime, in the average mutual fund averaging 12 percent (the seventy-year stock market average), you would have $5,458,854.45 at age sixty-five. Hope you like the car!” (Ramsey, p. 32)
Not only is the cash-for-clunkers program spending taxpayer dollars it doesn’t have, it’s using the national debt to encourage Americans to make bad financial decisions—decisions that prevent many Americans from building real wealth. While I am happy to see Democrats get behind the idea that our economy can be stimulated through consumer incentives, those incentives should encourage prosperity for all, not just lenders. Since the Democrats seem positioned to be the party that takes away wealth, Republicans would be wise to champion ideas that incentivize wealth production. Cash-for-clunkers may be good for Government Motors, but it’s bad for America.
Last 5 posts by Emil G. Maine
- A Dishonest Debate - April 24th, 2009
- Picking The Right Fight - April 15th, 2009
- The Limitations of Popularity - April 8th, 2009
- Learning from Rahm - April 2nd, 2009