Tuesday, August 04, 2009

Cash for clunkers

There are so many arguments against this ridiculous program. Let's take them one by one. First is the economic perspective:
The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.
It's also not at all clear the program is good for the environment:
Even when new cars and appliances are more efficient than the ones they replace, the act of replacing them entails environmental costs not accounted for in the stimulus programs. Building a new car, washing machine or refrigerator takes energy and resources: The manufacture of steel, aluminum and plastics are energy-intensive processes, and some of the materials used in durable goods, especially plastics, use non-renewable fossil fuels as feedstocks as well as energy sources. Disposing of old products, a step required by most incentive and rebate programs, also has environmental costs: It takes additional energy to shred and recycle metals; plastic components often cannot be recycled and end up as landfill cover; and the engine fluids, refrigerants and other chemicals essential to operating products end up as hazardous wastes.
Then there's the possibility that it may result in people actually driving more:
Based on more realistic assumptions (e.g. the Law of Demand), we can expect that increased fuel efficiency will result in an INCREASE in driving. Therefore, the overall net effect on fuel consumption and environmental improvements would be uncertain. That is, if fuel efficiency improves by 20% due to a Cash for Clunkers trade-in, but the driver increases miles driven by 25% because of increased miles-per-gallon (and because he/she is driving a brand new car), he or she would INCREASE spending on fuel, not decrease it. Likewise, there would be an increase in emissions from the increased driving, not a decrease in emissions.

For example, the chart above shows the relationship between fuel efficiency (miles-per-gallon) and vehicle-miles traveled per household from 1983 to 2001, using data (here and here) from the Energy Information Administration. As fuel efficiency increased by 20.4% from 14.2 m.p.g. in 1983 to 17.1 m.p.g. in 2001, the vehicle-miles traveled per household increased by 37.5% over the same period, from 16,800 miles to 23,100. Result? Overall spending on fuel INCREASED. There would certainly be other important factors (fuel costs, disposable income, etc.), but we can be fairly certain that increases in fuel efficiency would contribute to MORE driving, not LESS (or the same).
In addition, keeping in mind that one man's trash is another man's treasure, the program may result in fewer cheap cars for people of limited means:
Another unintended consequence of the Cash for Clunkers program is that poor people who can’t afford new cars – or expensive used cars -- will be crushed along with all those clunkers. If you can only afford $500 - $1,000 for a car, you’ll find many of these vehicles are now unavailable. They have been sent to the junk yard thanks to this program.
There's also the moral component that it is wrong to rob Peter so that Paul can buy a new car. With all this in mind, I fully expect the Senate to approve another $2 billion for the program.

Update: David Harsanyi has more.

1 comment:

Paradigm Shifter said...

Sadly, Colin may be right about the Senate.


Turns out Collins, Schumer, and Feinstein were feigning resistance. I doubt McCain will seriously use the filibuster over this issue.