Cash For Clunkers is a Dud
2009-08-15 · Guest: Katherine Mangu-Ward (Senior Editor at Reason magazine) · 59:48
Critique of the 2009 Cash for Clunkers program
Bob Zadek interviews Katherine Mangu-Ward, senior editor at Reason magazine, to critique the 2009 “Cash for Clunkers” program. They discuss the program’s failure as both an economic stimulus and an environmental policy, framing the discussion through Frédéric Bastiat’s “Broken Window Fallacy” and highlighting the unintended consequences on used car markets, charities, and the national debt.
Topics: Cash for Clunkers, Frédéric Bastiat, Broken Window Fallacy, Economic Stimulus, Environmental Policy, Market Distortion, Special Interest Legislation
Speakers:
- Bob Zadek – Host; San Francisco business attorney
- Katherine Mangu-Ward – Guest; Senior Editor at Reason magazine
- Caller (Richard) – Listener
Introduction and Frédéric Bastiat [05:44]
Bob Zadek: Welcome, everybody. Welcome to The Bob Zadek Show. Nice to be back from vacation. Today’s show, I’m sure you’ll find quite interesting. In doing work for this show and in just studying libertarian literature, one of the real pleasures I find is I get to meet and learn about some really interesting folks who, had I not done this show, I would never have been introduced to.
Frédéric Bastiat, who I’ve referred to before on this show, is one of those philosophers who I’d never heard about before I started doing my work and learning, preparing for each show. Frédéric Bastiat was a French philosopher who lived roughly from 1801 to 1850, 1851, something like that. He was, although he wouldn’t call himself that, a libertarian. That wasn’t the label he would use. He wrote a book called The Law. Easy to read, I commend it to all of you.
Frédéric Bastiat. Today’s show, I will start with a Frédéric Bastiat quote because it is so relevant: “The state is that great fiction by which everyone tries to live at the expense of everyone else.” He could have been describing the current Obama administration, and it’s that type of legislation which is today’s topic: Cash for Clunkers.
I’m pleased to be joined by Katherine Mangu-Ward. Katherine is a senior editor at Reason magazine. She’s a Yale graduate. I wonder if she knew Hillary and Bill when she was there. She’s been a reporter for the Weekly Standard and a researcher at the New York Times op-ed page for columnist John Tierney, who I have read regularly. Katherine, thanks for joining the show.
Katherine Mangu-Ward: Thanks for having me on.
Defining Cash for Clunkers [07:52]
Bob Zadek: Today’s topic is Cash for Clunkers. I’d be interested to know if any of the listeners out there have had any contact with the worst piece of legislation I have seen recently, the so-called Cash for Clunkers bill. Now, Katherine, let me just introduce the bill before I turn the microphone, as it were, over to you for a little detail.
Katherine Mangu-Ward: Go for it.
Bob Zadek: One would think that legislation enacted by our elected officials—the people who work for us—would have some objective basis. That is, one would like to think that while being in the legislature, which is essentially a pretty gosh-darn easy job, one challenge is before you enact a piece of legislation, you satisfy yourself that there is objective, empirical data to support the legislation. There has to be, in simple words, and Katherine, to quote the title of the magazine you work for, a reason for the legislation. One would like to hope that legislation isn’t passed just on a whim or on a vague belief or on a superstition. It should be based upon objective data.
Now, the Cash for Clunkers bill, for those of you who have been on Mars for the past couple of months, is simply—and Katherine will expand upon this—federal legislation that, in a word, the federal government will give to Americans who are lucky enough to have a really crummy car, up to $4,500 as a voucher to use when they buy a new car. That is, it is a crass income transfer of my money to somebody who drives a crummy car.
Now, the justification for this legislation, the reason for this legislation, according to Congress, is twofold: it is a stimulus—it is done with stimulus money to stimulate the economy—and it is done for environmental reasons because it gets bad cars that are bad environmentally off the road and replaces them with better cars. As you will see from today’s show, in fact, the legislation has a de-stimulative effect. It hurts the economy and it hurts the environment. Now, Katherine, have I been overly simplistic?
Katherine Mangu-Ward: Well, for an opening monologue, I would say you captured a little of the subtlety there. It’s actually perfect that you start with a mention of Bastiat because, of course, his most famous argument is the parable of the broken window.
The Broken Window Fallacy [10:32]
Bob Zadek: The parable of the broken window. Exactly right.
Katherine Mangu-Ward: This is where he tells the story of a little boy who breaks a window. At first, everyone feels bad for the shopkeeper whose window has been broken, but then they start to say, “Well, you know, it’s actually good because the money will go to the glazier, it will go to the man who replaces the glass, and he’ll spend that money on food and shoes, and it’ll stimulate the economy.”
Of course, the fallacy of this argument is that you’re ignoring the loss of value to the shopkeeper. The window has been destroyed. In the Cash for Clunkers program, it’s these old cars. These old cars that are being junked—that are being “clunked,” I suppose is the technical term here—were valuable items. It used to be that Americans bought these clunkers from each other. We also shipped them to the Third World, where people who would never have had a car had a chance to buy a car and all the sort of value that comes with that. So, it’s, I think, not just the transfer of money from taxpayers to people who happen to be lucky enough to have a bad car; it’s also the destruction of value that’s troubling.
Bob Zadek: And we are taking a totally—a perfectly usable—forget about my sarcasm about a car sitting on milk crates in the driveway. Put aside the sarcasm, that’s just the New Yorker in me. But the car is a perfectly usable car, which is getting somebody from point A to point B. It is a useful asset. And we are taking a useful asset—maybe the person driving it would like a better car, but it is a totally useful asset—and we are taking that asset and rendering it useless, putting chemicals in the gas tank, chemicals in the crankcase, to make sure nobody, nobody ever has the very bad judgment to drive that car ever again. So, we are destroying a capital asset in the name of stimulating the economy.
Katherine Mangu-Ward: That’s right. By definition, these cars have to be cars that were being used. They have to be cars that have been insured in the last year. So, we are, because of the very way the law is being written, destroying useful cars.
Economic and Environmental Justifications [12:46]
Bob Zadek: Now, Katherine, what is the data? What is the Obama explanation for the stimulative effect of this $4 billion—$4 billion with a B—federal program on the economy? What is their economic—we’ll get to the environmental—what is the economic justification for this?
Katherine Mangu-Ward: So, the economic argument is actually very simple that the Obama administration is offering, which it would have to be to convince the broad American public, right? It’s simply that if you give people a chunk of money to buy a car, they will buy a car now. And that’s true, up to a point. It’s, of course, true that if you say to any class of Americans, “Hey, I’ll give you $4,500 to buy something that you kind of want,” they will buy it.
But, of course, then what the question remains is: would those people still have bought those cars eventually, but a bit further down the road? In that case, we’re just moving demand from the future to the present, which has political value, but obviously no economic value.
Bob Zadek: Sorry, Katherine, go ahead.
Katherine Mangu-Ward: And there’s also the problem where we are choking off different kinds of economic transactions that might have happened. So, for instance, used car dealers are being hurt a lot by this.
Bob Zadek: And what about people who repair these clunkers? They don’t get to make any money.
Katherine Mangu-Ward: That’s right. Of course, one group of people that’s doing quite well right now are scrap metal dealers. So, you could add that to the plus side.
Bob Zadek: So, we have all of these unintended—all of these unintended consequences which nobody has built into the equation. And what’s astonishing is the Obama administration says this is a “success.” Now, the way they justify that label of success is they have somehow persuaded people to accept $4,500, and there’s overwhelming demand for the money. And that’s what the Obama administration calls a success? They’ve persuaded people to have free money?
Katherine Mangu-Ward: That’s right. That’s all there is to say for it. They’ve persuaded people to take money and spend a little bit of their own to get the money.
Bob Zadek: And maybe spend it sooner than they would have otherwise spent it. So, that’s what passes for success in legislation.
Government Ownership and Market Distortion [19:26]
Bob Zadek: We’re talking with Katherine Mangu-Ward about the Cash for Clunkers program. I’m interested to see if any of you out there have benefited from the program. If so, please call and let me know.
The really crude, crass parts of this legislation is: who owns the biggest car company in America? The Obama administration. So, this is the Obama administration taking our money so that Americans can spend our money at a GM dealer to increase GM sales so the government, as a stockholder in GM, can make more money on its investment. Is this capitalism? Katherine, what’s going on?
Katherine Mangu-Ward: Well, it certainly does sound suspicious when you lay it out that way. I would say that if that was the intent—if there was a real plan to just sort of cycle over and over the same taxpayer dollars back into the government and back out to the people again—they might have restricted the plan to American car companies only. They didn’t, which I think is a sign that the logic behind this was much more focused on a general stimulative effect for the economy and also the environmental argument, which you alluded to earlier. Still, it does put a bad taste in the mouth. It does make you think, you know, what’s going on here? That we have essentially a government-owned car company and massive government subsidies to buy new cars.
Bob Zadek: And why not Cash for Betamax? And Cash for polyester suits? And Cash for transistor radios? And Cash for 45 RPM record players? There’s lots of stuff that can stimulate the economy. Just go through people’s junk heap and pay them to throw away their junk. It just makes no sense.
Environmental Impact and Carbon Costs [23:02]
Bob Zadek: Plus, if you analyze this—which Congress didn’t do—one would hope that Congress, that august body, would have asked itself, “Okay, is this going to accomplish the desired effect, or is this just a way to buy votes?” Well, if the desired effect is environmental, well, on the positive side, we get—presumably get—polluting cars off the road.
However, however—and there’s no analysis of this—look what we—how we damage the environment. First of all, a lot of cost went into—environmental cost went into—building that car, which we now destroy. So, we have to consume environmental cost in building a new car to replace it. We also have to—we have to mine the iron ore, that’s environmentally destructive. We have to make steel, that’s environmentally destructive. We have to manufacture it, that’s environmentally destructive. We have to ship the new car, that’s environmentally destructive. We have to destroy the old car, that’s environmentally destructive.
And also, the new car is likely to be driven a lot more because people like to drive their cars. It’s highly more likely to be driven more, so we’re going to burn up more gas in driving the new car than we did—or than the Americans did—on the old car. The point being, there’s no data to show this is environmentally helpful, and many economists have found that this is environmentally destructive.
Katherine Mangu-Ward: That’s right. And actually, two things on that point. One, any car that was built before 1984 is excluded from this plan. This was a result of some lobbying by the classic car folks.
Bob Zadek: The classic car folks.
Katherine Mangu-Ward: That’s right. So, if we’re talking about the cars that genuinely are leaving a plume of dirty smoke behind them, these are not cars that were built after 1984. So, we’re not getting, from the environmental perspective, the worst offenders off the road, and that’s because of the mechanics of Congress.
But the other side of this, I think, is, you know, there’s a reason that one of the more extreme forms of environmentally conscious living is “freeganism.” I’m sure you’ve heard about these people. These are the people who eat food out of dumpsters that’s still good and get their furniture from the side of the road and generally try not to participate in getting new stuff manufactured in America. And that is, you know, I think it’s a crazy way to live, but it does reflect this ultimate environmental insight that making stuff uses up natural resources, especially stuff like cars.
Bob Zadek: And you know, there was an interesting—there’s a very interesting environmental study. There’s an economics professor named Christopher Knittel at UC, University of California at Davis. And he calculated that the—assuming, taking the government figures—we are removing some carbon emissions from the air. Let’s stipulate that according to the government. The cost of removing one ton of carbon emissions under this Cash for Clunkers program is $365.
Now, under the Waxman-Markey bill, which is a bill designed to put a cap on carbon emissions, they assign a cost of a ton of carbon emissions at $28. So, under the Waxman-Markey bill, carbon emissions cost $28 a ton. We are paying $365 a ton under the Cash for Clunkers. So, we are paying more than 10 times the cost of removing carbon emissions. So, no environmentalist—environmentalists ought to be going crazy over the Cash for Clunkers bill because it’s highly destructive to the environment. Instead, they are embracing it because they haven’t done the work. All I ask for, all any of us could expect is that our elected officials do the work. And when they come home to us during their recesses, during their countless recesses, they say, “Here’s the proof that what we are doing is going to accomplish the benefit.” In fact, they did not. They didn’t do their job.
Political Motivations [27:09]
Katherine Mangu-Ward: Well, I think this gets back to what you said right after the break, which is: well, what is the desired effect here? Is the desired effect to stimulate the economy? A little bit. Is the desired effect to get carbon out of the air, help the environment? A little bit. But the main desired effect is to get votes. That’s the driving force behind these kind of actions by Congress, and that’s especially the driving force behind expanding the program from the initial $1 billion appropriation to the broader expenditures being pulled out of the stimulus money. This is a classic case where to look for sort of logical, consistent, numerically backed justification for a government policy is wrong; you should just look and see who it might win votes for.
Bob Zadek: You know, when you talk about buying votes, I’m reminded of the great movie—it’s just been remade—The Taking of Pelham One Two Three. In the original—I haven’t seen the remake—in the original, the mayor of New York City, much bedraggled, is asked to pay a $1 million ransom to people who have hijacked a subway train, and they’re holding 17 riders as hostage. And he doesn’t have the money, New York doesn’t have the money to pay the $1 million. And he asks his chief of staff, “Why should I pay the $1 million ransom? What will I get for that?” And his chief of staff says, “17 sure votes.”
Well, that’s what Obama is getting: a lot of sure votes. He is getting the junk car driving lobby behind him 100%. But do we want to allow government to spend $4 billion with a B—$4 billion of our money—just so the Obama administration can buy votes? And remember, this is being done with stimulus money, money which was supposed to be used to benefit the economy. And there is no proof whatever this has any stimulative effect on the economy. In fact, those who have studied it objectively have concluded this is a de-stimulating effect on the economy. So, how could laws be passed without the homework being done?
Impact on Dealers and Charities [36:07]
Bob Zadek: Of course, this is a very crass form of income transfer. As you know, I, as well as all of my colleagues, all of my fellow believers, we abhor income transfers. We abhor any concept that another American is more entitled to my money than I am. And if they are more entitled to my money than I am, I’ll be the one to give it to them, not the government. Any program where the government simply says, because of some accident of fate, another American is more entitled to my money than I am, makes me crazy. And Katherine, this is just a form of income transfer, isn’t it?
Katherine Mangu-Ward: It is, and it’s one that confuses the people who are trying to take advantage of it. For instance, right now, Ford is speeding up production of Escorts. The Escort is a popular Cash for Clunkers car because it fits all the criteria that the government has somewhat arbitrarily laid out. But as long as they remain unsure how long that money will last—the first set of appropriations for Cash for Clunkers went in four days, right? So, they appropriated more money, but predictions for how long that money is going to last range from it’s going to be out in the first week of September to, well, there might still be some money left in November.
That means production goes up on certain cars, dealers stock up on certain cars, and at some point, the money is just going to dry up. This is what happens with an arbitrary government transfer. When that happens, somebody’s going to be left holding the bag. It’s probably going to be the dealers, because the dealers are also reasonably going to expect a drop-off from their normal sales once this program is over. Since it’s transferred purchases that would have happened in the future to the present, they’re going to be left with a bunch of extra cars that meet criteria that are no longer relevant because the government program has ended. They’re going to be waiting to get checks cut to them from the government. Already, a bunch of dealers are as far as, I think I read somewhere, half a million dollars, a million dollars in the hole waiting for a government check, which is never, as we know, a comfortable position. And so, even if there is a sort of momentary spike and this transfer successfully occurs, people like the dealers and the producers can’t rationally respond to an economic model that’s based on arbitrary government programs.
The Knowledge Problem and Political Risk [38:01]
Bob Zadek: I’m a lawyer in my day job, and I’m also a lender. I make commercial loans; I have a company that does that. And any commercial lender, when they make loans, you have to establish credit rules: who are you going to lend to, what industries are you going to lend to? And one of my own personal credit rules as a lender, as simply a member of the economy, is I don’t make loans to businesses where there is—and this is my own label—a “political risk.” That is, I will not make a loan where the borrower who I am lending money to might not survive because of political issues, because of something Congress does.
For example, I will not make a loan to a healthcare provider because I can’t predict what Congress is going to do. The problem for me is I can underwrite, I can understand the marketplace, or try to, and make loans based upon my own business judgment—who’s going to pay back the loan. However, once you interject politics, it’s impossible to make a lending decision.
Now, what does it have to do with Cash for Clunkers? Well, in Cash for Clunkers, there are winners, as Katherine and I have pointed out, and there are losers. The losers are automobile repair shops, used car dealers, auction houses that auction off used cars—all those folks will have their business drop off. Now, if you were in those businesses, you had studied the market, you understood the market, and you made decisions about how to employ your own capital to make a living. You understood your market. But you could not underwrite what the clunkers in Washington are going to do. So, the marketplace becomes all out of whack when people cannot make intelligent business decisions based upon the market because we have the government, which has so much influence in the market, nobody can make intelligent decisions. And then people just say, “I can’t make decisions, therefore I’m going to wait on the sidelines.” And the economy is stifled. And I see that in my own business. When the government starts messing with the market, it’s too complicated. The government cannot anticipate all of the consequences. And you see it here, writ large, in Cash for Clunkers.
Impact on Charities [40:26]
Katherine Mangu-Ward: And it’s not just for-profit businesses that suffer; it’s also charities. There was a huge series of transactions that was going on where people were giving their old cars to charities, and then they either fixed them up and gave them to people who need them or sold them for scrap. Of course, if you’re given the choice between a small tax deduction or no benefit at all for giving to a charity or getting your $4,500 from the federal government, well, you know which one you’re going to choose. So, it’s not just folks who are trying to act in the marketplace; it’s also people who are dependent on the secondary effects of that marketplace, like the people who run these car conversion charities.
Unintended Consequences and the Knowledge Problem [41:30]
Bob Zadek: And the point is, government never intended to harm the charities. However, our economy is simply too complicated. And when government gets involved in the economy without doing the research, the unintended consequences invariably produce detrimental effects that wipe out any possible beneficial effects.
So, those of us who say, “Stay out of the economy,” do so not out of a visceral distrust of government—although, of course, that’s there—but simply because it can’t be done. When you have a marketplace, you have 200 or 300 million people, each making a decision based upon self-interest. Well, the collective brainpower of 300 million people sitting in their kitchens making decisions is much more powerful than the collective brainpower of a handful of legislators who are trying to manage and affect and manipulate an economy. It just—it can’t be matched. I’d much rather go for the collective brainpower of all Americans rather than the minuscule brainpower of Congress, plus the fact that Congress is motivated, of course, by survival and reelection and party politics. So, it’s not an objective decision; they have their own self-interest involved. And that’s why, as Katherine pointed out, there are so many unintended consequences. You can’t manage the process; it’s simply too complicated.
Katherine Mangu-Ward: This is also why it’s bad when Congress puts a huge premium on acting quickly. If we have warning, the 200 or 300 million economic actors in the country can adjust. It may not be optimal, and there still will be unintended consequences, but when you take something small like, “Oh, it’s a billion dollars for Cash for Clunkers,” “No, wait, never mind, let’s add a couple more,” that makes it even harder for people to compensate for the unexpected. And of course, when you do this on a massive scale, as with healthcare reform, which Congress has put a tremendous premium on rushing through, on getting done as quickly as possible, it just doesn’t give the market time to adjust.
Bob Zadek: And can anybody out there explain to me why there was a rush? Was it “Hurry up before this clunker driver drives to work tomorrow”? “Let’s catch him before he gets in the car on Monday morning and drives to work.” If ever there was a piece of legislation for which there was no hurry, it’s this piece of legislation. There was no calamity about to happen. These people were perfectly happy to get into their cars and to drive to work. They were living, believe it or not, fairly normal lives. They just were driving cars with low gas mileage. Otherwise, their lives were pretty darn nice. So, what was the rush?
And there’s one other consequence which I’ll mention, Katherine, before we go to break. These clunker drivers would have eventually traded in their car and bought another car. Well, that car, that clunker, might have ended up in the hands of somebody else where this is the only car that buyer could afford. Now, that buyer is denied the chance of buying a really cheap car. So, there’s a whole, at the bottom of the market, a whole lot of people don’t have access to cars at all because their cars are having chemicals put into the engine and they can’t buy them anymore. Yet another unintended consequence that our buddies in Washington haven’t thought of.
Caller Richard and “Obama Math” [49:12]
Bob Zadek: Richard on line one. Good afternoon, Richard.
Caller (Richard): How are you?
Bob Zadek: Richard, how can we help you this morning?
Caller (Richard): Well, I have a question for you and/or your guest.
Bob Zadek: My guest is Katherine.
Caller (Richard): Katherine, yes. Okay, the question is, you know, first the government allocates $1 billion, and that runs out in—
Bob Zadek: $2 billion, but go ahead.
Caller (Richard): The first allocation was $2 billion?
Bob Zadek: Uh-huh, $2 billion.
Caller (Richard): All right. Now, I’ve been trying to find online a statistic that tells me how many units were actually processed during that period before the money ran out. Do you know that number?
Bob Zadek: Just divide 4,500 into a billion.
Caller (Richard): No, no, no. That’s not the way it works. We need to know how many cars were actually processed, how many clunkers were junked or taken in. Katherine, any idea?
Katherine Mangu-Ward: Well, I think it’s as you say: if you take the allocation, divide by 4,500, that’s the number of transactions that were done, and each transaction required one clunker. Now, how many of them were actually officially done in is less clear. I know that many dealers are sitting on the clunkers that they’ve taken in, waiting to be told how to turn them in, how to get the full credit. They’re worried because the government is being so slow in processing the checks that once they let the clunkers themselves go, they won’t have proof that they were compliant with the terms. So, I would imagine that the number of actually clunked clunkers is very small in that initial period.
Bob Zadek: I think we need a “Clunker Czar,” don’t you, Katherine?
Katherine Mangu-Ward: We better get on that.
Bob Zadek: Obama has appointed more czars than all of Russia ever did in its entire political life. So, I think we do need a Clunker Czar.
Caller (Richard): Well, you know, I did find a number online, which was 22,000, which seems ridiculously low. But if you do the math—what we’ll check out “Obama Math”—and you divide the 22,000 into $1 billion, which I thought was your original allocation, you get $46,000 per clunker. Anyway, this is in some kind of alternate universe.
Bob Zadek: It is. It dwarfs the Army’s $400 toilets, doesn’t it? Remember the $400 toilets for the Air Force?
Caller (Richard): Here’s another quick example of Obama Math. You take the unemployment rate for July, which went down from 9.6 to 9.4 percent, and then you look at the jobs lost—250,000—and you get some kind of affirmative action type result, you know?
Bob Zadek: Exactly right. Well, you know, Richard, in the stimulus in general, most economists, including Timothy Geithner, our “deer in the headlights” Secretary of the Treasury, and Ben Bernanke, most are saying we’ve turned the corner on the recession. Well, if that’s the case, why not stop the spending? We’ve done our job, pack it in, go home, and close up all the programs. But programs once given a life, they never end. Richard, using logic now—you can’t do that with government, you know?
Caller (Richard): No, no, Bob. You’re using logic now. You can’t do that with government.
Bob Zadek: On KNEW, we always use logic. Richard, thanks so much for the call.
Caller (Richard): You’re totally welcome. Bye-bye.
Special Interests and Debt [53:29]
Bob Zadek: You know, Katherine, on the program, there’s no indication, there’s no data at all on any stimulative effect. And this is in reality Obama campaigned—he railed against special interest legislation. Now, special interest is not precisely defined; it really just means the other guy’s supporters. That’s what special interest means. But what could be more special interest than this legislation? It benefits a very small segment of society, it benefits a very small segment of the economy, and it harms other segments. Isn’t this special interest at its most crass?
Katherine Mangu-Ward: It’s true. Just because you don’t have a cluster of high-paid lobbyists doesn’t mean you’re not a special interest. And I think that that’s sometimes lost in the discussion about special interests. We have a ban on bringing people into the administration who have certain kinds of backgrounds which are classed as special interest. But at the same time, people who have strongly vested interests in certain groups but just don’t happen to have ever been paid to hang around on Capitol Hill and take people out to lunch, you know, wind up not getting caught in those kind of bans. And I think that’s right: that any legislation that targets a small subset of Americans and does so at the expense of the general taxpaying public could rightly be called special interest.
Bob Zadek: So, this is special interest at its most, at its worst. And this is from an administration who has railed against special interest when running for office. This benefits a tiny subset of the economy, if it benefits them at all, and it harms the rest of it.
Distorting Individual Decision-Making and Debt [55:06]
Bob Zadek: It also distorts individual decision-making. Somebody who was perfectly content with their existing car is now bribed with free money to make an economic decision to buy a new car and, by the way, to probably incur debt, because the $4,500 doesn’t cover the cost of the new car. So, this clunker driver now has to get a clunker loan to cover the new car. And instead of having a car that was fully paid for, now this clunker driver now has incurred debt. And I thought that the problem with the economy was over-leveraged and too much debt. So, now we have people who are probably at the low end of the economic spectrum incurring debt because they were encouraged to do so by the government.
Katherine Mangu-Ward: That’s true. At the beginning of the recession, and as some of the stimulus money—although obviously not all that much of it, I think we’re not yet up to having actually dispersed $100 billion of it—but at the very beginning of the recession, people in general exhibited a bunch of pretty rational economic behaviors. People suddenly started saving more and spending less and paying down debt. So, for those who buy into the philosophy that we needed to get people to buy more and spend more to get the economy going again, things like the Cash for Clunkers plan are designed to trick people out of their rational behavior, to sort of snap them out of that and move them back to the attitude they had when times were good: to take on debt and spend more money.
Bob Zadek: Spend, spend, spend, spend. Right, exactly. This is Bob Zadek. I was joined today by Katherine Mangu-Ward. We were talking about Cash for Clunkers. I’m proud to announce that The Bob Zadek Show has expanded its horizons. It’s now, to invent a verb, “podcastable.” Go to the iTunes Store, click on podcasts, search for podcast by author, type in Bob Zadek, and boom, there’s my channel with all of the audio files. Subscribe now and all my podcasts will be downloaded so you can take me with you wherever you go. This is Bob Zadek, host of The Bob Zadek Show, thanking very much Katherine Mangu-Ward for joining me talking about Cash for Clunkers, enacted by clunkers. I’ll be back next week. Thanks so much for joining me.