Cash For Clunkers: The Data On Why It's Working
greencarreports.com
greencarreports.com
You would have exactly the same results if you instituted Cash for Computers, where you paid people money for increases in CPU clock speed. Wow, $1,000 rebates increased sales in computers and, wouldn't you know it, new computers are faster! Sweet! For people not buying computers, not quite so sweet.
I don't know about you guys, but in college I went through two of these clunkers, neither lasting more than two years. What happens to the price/availability of them as you take 2M of them off the road?
This program is only collecting up the 14mpg battering rams that no-one is buying; not even college students. (The difference in gas between a 'clunker' car and truck will approach the cost of the vehicles themselves in a year.)
A large part of why this program is so popular is precisely because these particular vehicles are worth almost nothing without it.
It is clearly mildly net environmental positive if your definition of environmentalism is primarily of the "doing things which makes me feel environmentally conscious is environmentally positive" variety.
If your definition of environmentally positive contains relationship to objective reality, however, [Citation Needed]. It is highly not obvious to me that moderate gains in fuel efficiency are net positive over the carbon footprint of producing an entire automobile.
Indeed, it is entirely possible that the environmentally optimal choice was to pay people to not buy new cars where they otherwise would, thus idling big polluting factories and giving Captain Planet the day off. However, that wouldn't have accomplished the bailout of important political constituencies.
Large numbers of the cars sold are imports, and large amounts of the car parts for cars manufactured in the US are imported as well...
At $3 billion, the new program size, Cash for Clunkers is four times larger than the U.S. government breast cancer research program. It says something about American priorities.
Not that this is a particularly good use of $3B. But the fact that it exists does not speak directly to American priorities.
This program is a huge destruction of assets. They add a sodium silicate to the engines instead of oil which causes significant internal engine damage. So you can't even make rebuilt engines from these cars.
"In fact, the Ford Explorer--that quintessential sport-utility of the 1990s--occupied no fewer than six of the top 10 trade-in slots. Explorers from model years 1994, 1995, 1996, 1997, 1998, and 1999 were in the top 10, with EPA mileage ratings of 14 to 18 miles per gallon depending on drivetrain.
Two more Top 10 trade-in slots were sport utilities as well--the Jeep Cherokee and Jeep Grand Cherokee--with two minivans, the 1997 Ford Windstar and the 1999 Dodge Caravan bringing up the rear. All 10 of the top trade-ins were domestic vehicles."
http://news.yahoo.com/s/ap/20090804/ap_on_go_pr_wh/us_cash_f...
David Axelrod is one of the great masters of astroturfing, since corporate astroturfing was what he specialized in before before joining Obama's team.
In a nutshell you can't create wealth by destroying useful things.
Anyway, the only reason why the cars are being destroyed is to meet the other (primary?) goal of the legislation: raise average fuel efficiency.
Assuming the government didn't print the money from thin air (if they did it means more inflation), then no more money has been injected into the economy than if the programme didn't exist.
It's not always true that injecting money into an economy simply result in visible inflation. Such an injection is indeed essentially a wealth re-distribution but if such a re-distribution causes more productive investment when you would have otherwise have people hoarding money, then you have economic expansion. And even more, if such an injection successfully causes the economy to grow, you don't have the same degree of inflation, since a larger store of money is now chasing a larger store of goods and ... it's all good.
But this is a hypothetical discussion between the Keynesian and Classical positions. In the case of Cash for Clunkers, I think both schools would agree that we have a Bad Policy. The Classicals would evoke your Broken Window Fallacy while the Keynesians would point out that this is not really increasing socially useful resources.
And further, we currently don't have obvious Germany-1920's-style inflation but the real enemy that lead up to the crisis was asset inflation. And the current program is really neither monetarist nor Keynesian but rather simply a process of propping up the same asset-inflationists that organized the previous bubble.
A broken window might or might stimulate more economic activity. It depend on, among other things, whether the money spent on fixing the window would have otherwise been horded.
The problem with broken window economics isn't that breaking and fixing them doesn't create jobs but that it doesn't stimulate rational decisions. If a glazier can count on business from hoods he pays to throw bricks in the night, he won't create a business that gives much to society as a whole. Remember, the Soviet Union didn't fall for lack of jobs but for lack of sane economic activity...
And that's what's wrong with cash for clunkers. If a company can just sit and repeat clunker money, they are probably going to just ... create more clunkers.
Overall this program is likely increasing the number of vehicles on the road. The energy cost of producing the new more efficient cars may well be offsetting the energy gains of trashing the old clunkers.
It turns out that they destroy the cars that are turned in.
So really, it's a program to destroy functioning assets. Perhaps we can also pay people to break their windows.