Jun 19 2009, 4:29PM
Cash for Clunkers Goes Thud
One thing you can say about the new "Cash for Clunkers" legislation -- approved by the Senate yesterday and heading to Obama for a signature -- is that it's not as bad as it could have been. And yet the project started with such high hopes! You had Alan Blinder calling it a "remarkable" public policy hat trick: We could stimulate the economy, improve the environment and reduce income inequality all in one go! And all by having the government buy and scrap some crappy old vehicles.
The idea sounded nice, but it was not hard to see the problems. If the government artificially raises the price of crappy old cars, it will create market for fixing up crappy old cars no one drives -- hardly an efficient public policy goal. (Last year Steven Levitt hypothesized that the program might actually increase the number of Clunkers on the road.) And if the program lasted for any extended period of time, the effects on income distribution would be tiny. Sure, the immediate beneficiaries would be the current owners (Blinder says most Clunker owners are downscale families). But, after the initial round of sales, the price of used cars would go up to reflect the government subsidy. That wouldn't exactly be a boon to the driving poor.
But, as near as I can tell, the Bill that passed the Senate avoids the big problems. Will Wilkinson and others have pondered some clever schemes for ripping off the federal government and destroying the environment at the same time, but I haven't seen one that will work. Why can't Will sell his fuel efficient Civic, buy a smoggy old truck, trade it to the government for $4,500, and buy a brand new car that pollutes more than the original Civic? Because your clunker must be "continuously insured and registered to the same owner for at least one year" to claim a voucher, and the window for the trade-ins only runs from July 1 to November 1, 2009. (On the other hand, the trade-in policy is so narrow and confusing that I'm not sure there'll be lines running around the block to take advantage of it.)
The main problem with the bill, I think, is one Ryan Avent latched onto last month: It's poorly targeted. You can trade in an SUV that gets 17 mpg and buy one that gets 19 mpg with a $3,500 helping hand from the federal government. On the other side of the docket, you can scrap your 19-mpg passenger car, buy a 30-mpg one, and get zilch. (Or maybe a thank you.) That's because the voucher benefits are all or nothing, depending on whether you cross the 18-mpg line.
Maybe there are some net gains for the environment in there. But the structure looks more like a gift to the auto industry than a gift to mother nature.
Clunkers -- ones you prolly couldn't trade in, alas -- via Panorama Paul's Flickr photostream.
"But the structure looks more like a gift to the auto industry than a gift to mother nature."
The purpose of the law is not to send a gift to 'mother nature' it's to revive the economy, somehow. Mother nature is not unemployed, outsourced or unemployed. As much as we should all be obsessed with global worming, some of us seem to have other priorities.
250000 cars will not revive the economy.
The SAAR* for the month of May was 9.9 million.
SAAR (Seasonally Adjusted Annual Rate) is a term used in the industry to depict the selling rate of vehicles for a particular month. In the case of May, the 9.9 million rate indicates that the industry was on pace to sell 9.9 million vehicles on an annual basis. As we all know, 2009 is not a typical year. In a typical year, the industry SAAR has been in the 14 million to 16 million range.
Also, what ever happened to the transparency the new administration and Congress so bragged about. If this was such a "no brainer" bill it should not have been part of the War Funding Bill.
An ironic twist seems to be that this may raise the cost of vehicles now under consideration for Electric-retrofitting and electric conversions. Some of the considerations now in review are for some nice "Wing" Panel Trailers. The added solar can really extend the range of the Electrics as long as the airfoil solar trailer is large enough for the vehicle considered. One vehicle being considered for electric conversion is any of several minivans, but a conversion company needs to get several of the same year vehicle; for parts and fitting extensions. But if the cost for the basic scrap vehicle goes up, so do the costs of the conversion to electric mini van & trailer.Alas,
Mystery
But I assume your faith in government solutions for all our other problems is unaffected...
sigh, probably.
60% the cars that are currently donated to charity will now be eligible for a $3500 or $4500 voucher under the cash for clunkers program. Since the tax deduction for donating a car is only $500 or what the car sells charities won't be able to compete with the program and charitable car donation will end. A better idea is to just change the amount a person can deduct for donating their car back to the book value. That way every car is eligible, the government doesn't have to spend $4 million of our dollars giving away vouchers and trying to administer a program that is way too convoluted!
Karen Campese
http://www.cars4charities.org
Compare gun buybacks to car buybacks.
With car buybacks, the policy goal is to remove the junk cars from the streets, support the car manufacturers, and make sure that Americans are driving and enjoying better cars.
With gun buybacks, ...
The biggest problems with this program that I've seen outlined are "adverse selection" of the cars that get turned in and the payment of a far above market price.
But why do you have to let the car owners adversely select what gets turned in? Why not let the government "advantageously select" the vehicles to purchase, and at the market price? Why not have the program's administrators go to cars.com, and like sites, look up the very old Chevy Suburbans, Ford F250 pick-ups, etc., and start buying and crunching them.
All the buys could be arranged by phone. When the representatives of the participating salvage yards came to pick them up they'd inspect and drive the vehicles, get the signatures, and leave the check. It could be very efficient. Vehicles could be kept on lot for a month so an independent inspector could make sure the salvage yard inspected them honestly. Also, there would be stiff criminal fraud penalties made clear to the vehicle owners and salvage yards to discourage fraud.
People could still offer their old vehicles to the government, but the trained administrators would decide whether they are worth buying and crunching.
The price paid would be the market price, not way above it, so this would eliminate all of the perverse incentives and potential gaming discussed.
This would decrease the supply of old vehicles and raise the price to some extent, increasing costs for poorer people, but this could easily be offset by increasing subsidies to lower the ticket costs of public transportation, or for that matter college. Or the cost increase could be offset rediculously by providing universal health care.
So this appears to eliminate all of the problems with this program that I have read about.
However, it still may be even better, as Levit points out, to take a more dircet approach to attacking the high negative pollution externalities of these vehicles, taxing them, say with a large surcharge to register older vehicles based on their polluting. The burdon on the poor could be offset as I described above, with things like lower bus and other mass transit prices, lower income or payroll taxes for the poor, more college aid, universal healthcare, etc.
A tax program may, however, be harder politically to pass.
For as much good as the environmental impact from this bill will have, there are many negative impacts as well. Some of these negative impacts are outlined in this pretty well written article:
https://www.mindreign.com/en/mindshare/Environmental-Concerns/Cash-for-Clunkers/sl36962308bp294cpp10pn1.html