[Congressional Record Volume 155, Number 123 (Friday, August 7, 2009)]
[Senate]
[Pages S9066-S9067]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           CASH FOR CLUNKERS

  Mr. KYL. Mr. President, I am not sure I will need that much time, but 
there are four or five things I wanted to address this morning now that 
the Senate has completed its work through July and we will all be going 
home to visit with our constituents over the August recess.
  What I did was I pulled together three or four topics I wished to 
address but, because of all the business we had this past week in 
dealing with the Sotomayor nomination and the cash for clunkers 
legislation, in particular, I had not yet had an opportunity to address 
them.
  Let me start with the so-called cash for clunkers legislation which 
was adopted last night. This is legislation which I think was, as I 
said, a very well-intentioned concept in two respects: No. 1, to help 
auto dealers get off the mat--they had all been suffering from a lack 
of business--as well as to promote the idea of more fuel-efficient 
cars. But the well-intentioned plan ran into a lot of problems, and I 
think there were two reasons for that.
  The first was the fact that it was rushed through. It was put on an 
emergency piece of legislation without hearings, without legislation 
having gone through the committee process, and, frankly, without 
anybody really thinking through how the program would be implemented. 
As a result, there were a lot of problems with it.
  I got calls from car dealers. They had no idea whether they were 
going to be paid. The Department of Transportation had no idea whether 
it still had money left to pay the car dealers. As a matter of fact, 
one of them called me and said, as of Thursday a week ago, the 
Department had said they didn't need to kill the vehicles anymore that 
they had taken in on trade-in--that is to say do what they do to them 
so they can never operate again--because they weren't sure the money 
would be available to send to the dealer for the transaction. So the 
dealer may need to resell the car as a used car. The program, in other 
words, was very confusing and they got a lot of confusing signals out 
of the Department of Transportation.
  That is why I offered an amendment yesterday that suggested we ought 
to call a timeout, a pause, to make sure all of the transactions that 
qualified could clear the process, the dealers could get paid, and we 
would know how much money we spent. Did we spend $1 billion? More than 
$1 billion? My amendment would have said whatever it takes to pay for 
all of the deals that had been made as of today, but then establish 
some process whereby the sales could be tracked, so that each day, at 
least by the end of the day, we would know how many cars were sold and 
what the obligations of the government were to the dealers that had 
acquired those trade-in cars. That way, we would know when we got close 
to the additional money that had been allocated.
  Well, my amendment didn't pass. As a result, it is quite likely we 
are going to continue to have problems with this program. So I hope the 
Department of Transportation can find a way on its own to do this 
without direction from Congress so we don't have the same kinds of 
problems we have had in the past.
  But there is a more fundamental problem with the program, and that is 
that it subsidizes a specific segment of the economy, as several of my 
colleagues pointed out, for the most part to simply advance the sale of 
a car that would have occurred anyway. So at the end of the day, there 
was no new economic activity--simply the expensive replacement of a 
vehicle that might have been used as a secondhand vehicle for several 
more years but because of the requirements of the program is actually 
destroyed. So as a matter of fact, we actually took value out of our 
economy rather than putting it in, and at a great cost. It was 
estimated that it was about $20,000 per vehicle.
  There was a great editorial--or column, I should say--in my hometown 
newspaper, the Arizona Republic, today by Bob Robb, who is one of the 
smartest people I know, especially when it comes to economic matters. 
The title of it is ``Cash for Clunkers a Lemon.'' In it, he points out 
what is wrong as a matter of economic policy with programs like this 
that subsidize a particular piece of economic activity but end up in 
effect simply costing the taxpayers of the country without advancing an 
economic cause.
  I ask unanimous consent to have this very erudite column printed in 
the Record at this point.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

               [From the Arizona Republic, Aug. 7, 2009]

                       Cash for Clunkers a Lemon

                             (By Bob Robb)

       The cash for clunkers program is a perfect illustration of 
     what's wrong with economic policy and thinking in this 
     country.
       The program is widely hailed as a successful economic 
     stimulant. Congress is rushing to pour more money into it.
       And it has been a success, if success is defined as selling 
     more cars in the short-term.
       Basically, the program offers owners of old cars a subsidy 
     to buy a new one. If government subsidizes something, demand 
     for that thing will increase--whether it is cars, or toasters 
     or cosmetic surgery.
       And if there is a quick expiration date on the subsidy, as 
     is the case with cash for clunkers, demand will be 
     artificially goosed even more.
       This is obviously good news for car sellers and qualifying 
     new car buyers. It may be good news for those in the car-
     making business, if production picks up to replace depleted 
     inventories.
       However, for the economy as a whole, the effect of cash for 
     clunkers will be negligible, and slightly negative if 
     anything.
       In the first place, the federal government has no money. 
     So, every dime of subsidy it is offering has to be borrowed. 
     That puts a burden on future economic activity.
       To the extent the subsidy induces people to make a car 
     purchase they otherwise would

[[Page S9067]]

     not have made, the money so spent would have otherwise been 
     spent on something else or saved. There is no clear evidence 
     that the economy will be better off for the money to have 
     been spent on a new car than the alternatives.
       In political economy, it is virtually always better to look 
     to the long-term than the short-term. Government has neither 
     the wit nor the tools to manage short-term economic 
     performance. Despite all the happy talk about shovel-ready 
     projects, very little of the stimulus money has gotten out 
     the door. The Fed has been flooding the economy with 
     liquidity, but lending is still contracting.
       Virtually everyone agrees that Americans need to spend 
     less, borrow less and save more. President Obama has given 
     speeches lecturing us about that.
       Yet the federal government continues to offer massive 
     inducements for consumption and borrowing.
       The federal government will pay more for your old car than 
     it is worth if you'll buy a new one.
       The housing bubble was caused by an overinvestment in 
     housing and lax lending standards. Yet the federal government 
     is offering a sizable tax credit for the purchase of a new 
     home and the Federal Housing Administration will guarantee 
     mortgages with a down payment of as little as 3.5 percent of 
     the purchase price.
       Lax monetary policy is a subsidy for borrowing in general.
       In other words, the message from the federal government is 
     that Americans need to spend less, borrow less and save more. 
     Just not now.
       But it is during downturns that behaviors change. A respect 
     for economic uncertainty is what causes people to live below 
     their means and save for the future. When things are humming 
     along, few see the need to change their behavior.
       This isn't to say that government should remain idle during 
     a downturn, particularly one as severe as this one. 
     Government should be in the business of helping people cope, 
     through such things as extended unemployment benefits and 
     other income transfer programs.
       Government shouldn't, however, be offering new inducements 
     for consumption and borrowing. That's sacrificing the long-
     term for the short-term.
       The reason policymakers do this is, in significant part, 
     our fault. We hold federal elected officials, particularly 
     the president, responsible for the short-term performance of 
     the economy. If the economy is doing well at any given 
     moment, we're likely to think the president is doing a good 
     job. If not, we're looking to get rid of the bum.
       Presidents do not an economy make. They can affect the 
     long-term trajectory of the economy through wise or unsound 
     long-term fiscal policies. But day-to-day, we're pretty much 
     on our own.
       Of course, any presidential candidate who actually said 
     that would never get elected. And therein lies the heart of 
     the problem.

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