Unenlightened benevolence is attempting to solve a problem and actually making it worse.

A recent program that meets this definition is Cash for Clunkers. After taking a majority stake in two of the three major automobile companies in the United States, the government has now paid individuals to buy cars from these companies.

This program replaced an asset that was owned by the driver (an old car) with a  liability (a new car) that carries with it 60 payments for five years. The net effect is additional taxation in the form of higher annual license fees and automobile insurance.
The intent of the $3 billion program was to help domestic auto manufacturers, but the Ford Focus was the only domestic car ranking in the top ten of all cars purchased under this program.

• Sales of General Motors and Chrysler vehicles continued to decrease.
• Total sales were equivalent to only three weeks worth of annual U.S. cars sold.
• Total fuel savings between the vehicles turned in and those replacing them were roughly 22 seconds of annual U.S. consumption.
• The government either borrowed or artificially created the money to finance this program. This ultimately results in inflation and a weak currency.

Cash for Clunkers ignored the basic function of markets by redirecting consumers’ limited resources away from their most highly valued use. Consumers purchased cars they didn’t need instead of paying down their debt.  Apparently members of Congress ignored the lessons of “everyone should own a home.”

For more on Cash for Clunkers, watch a presentation by the author

Tags: car sales, Cash for Clunkers, Chrysler, David Breuhan, Ford, General Motors, Spread The Wealth, Unenlightened benevolence