Cash for Clunkers, Obamacare, and Sustainability

Sustainability is a compelling concept these days, although it always seems to be applied to people’s private choices.  Meanwhile, everybody knows the federal government has committed to an unsustainable flow of future expenditures.  The promises the federal government already has made for Social Security and health care cannot possibly be met.  If our legislators took the concept of sustainability seriously, Congress would be looking for ways to cut back on government programs, not add more.

The Cash for Clunkers program is an interesting example of the government’s ability to manage its finances.  Originally established with a $1 billion budget, the program ran through that money in its first week, and Congress is now working on providing it with an additional $2 billion.  So, the program will cost three times its original budget.  Add to this the program’s bureaucratic problems and delays in registering cars, and it’s hard to hold this up as an example to demonstrate government competence.  Meanwhile, Congress is struggling with health care reform, and President Obama is offering the claim that this reform will lower government’s expenditures.  If the federal government can’t do any better on a simple program like giving out cash when people trade in their used cars, what hope is there that they can control cost on something as complex as reforming the health care system?

When Medicare was established in 1966 the program was projected to cost $12 billion in 1990, including an allowance for inflation.  The program’s actual cost in 1990 was $107 billion, or nine times higher than its original estimate.  Is there any reason to think that the optimistic projections of today’s health care reform have a better chance of being realized than the original projections for Medicare, or the budgeted cost for Cash for Clunkers?

Sustainability means little when applied to people’s personal consumption choices, because if some options become scarcer and more expensive, people substitute out of them into other options.  If prices rise for some goods, the market mechanism provides incentives for entrepreneurs to produce substitutes.  Sustainability is very applicable to government, because politics makes government promises difficult to undo, and the government’s force of taxation enables it to extract resources from productive individuals to meet those promises until it destroys their productivity.  With government, it appears that the only self-correcting mechanism is a complete collapse of the government.

President Obama was very effective at generating support among America’s young voters, who cast their votes for change.  A few decades from now, it will be very interesting to see how those voters in their 40s will face up to the unsustainable change they supported in their 20s.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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