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Is Cash for Clunkers Really Win-Win, as Representative Carnahan Says?

My wife and I are pretty conservative financially - our second car is a 1992 Honda Civic, bought used from a neighbor with 30,000 miles on it in 1998, and it now has 60,000 miles on it, because - again, part of our pretty financially conservative life style - we live walking distance to my school office. However, the car has no airbags, and with Beloved Daughter newly-driver's licensed, we would like to buy a new sedan, something that (groan) will eventually become her car. Therefore, cheap, cheap to drive, safe, and super, super reliable. Hence something like a new Honda Civic.

Along comes cash for clunkers. Having bought the fuel efficient car the first time around, I look down the list and see ... no Honda Civic! However, I just saw a video of Rep. Russ Carnahan of Missouri informing the press (but not the protesting constituents held outside the doors) that the cash for clunker program is a 'win-win.' (Midway through the video; I'm not posting the video for Dana's comments, but Carnahan's.)

(I was interested to see that the local NPR affiliate, KWMU, reported that the protestors "tried to break up the event but were kept out of the showroom." Looking at the video, I couldn't see any evidence that the protestors tried to break it up, and they left the showroom as requested. If someone at KWMU wanted to offer the factual basis for the preceding sentence, I'd be interested.)

I am trying to figure out how it is a win for me, in anything other than an abstract social goodness sense. I don't get a financial benefit of $4500 on turning in my car - which, in buying a Honda Civic, is far from minor - because I was prudent and good enough to think about gas mileage rather than simply buying the SUV monstrosities that the other families in our neighborhood were snapping up.

In addition, it seems to me possible - more than possible - that the price of that new Honda Civic is going to be more than it otherwise would be, because a government cash subsidy to the person who made the socially wrong decisions in past years will support the price of that new Honda Civic at something higher than it otherwise would be. Which I will pay, without any offsetting subsidy. Hmm. If this sounds whining, well, I am, because I have this feeling that my wife's and my very middle class financial prudence is, once again, getting played for a sucker.

But okay, past the whining, here's my question. Can you devise a way in which the program could accomplish its goals - and I'm not in principle opposed to getting clunkers off the road - without requiring that the prudent once again subsidize the imprudent?

If you want to explain to me how this is not merely a subsidy supported by the whole or, worse, a transfer from the prudent to the imprudent, I'm open to explanation and if persuaded I'll quit whining. But it does seem to me that not only don't I get a cash benefit that other people get as a reward for what, on the Congress's apparent view of things, are their anti-social buying habits - I'm going to pay a higher price for the new car than I otherwise would. If that's not correct, please explain to me why not. Or, if it is, tell me how the program might be revised to avoid these bad outcomes, or else why it is not possible.

TRE:
I'm not clear what the goals of the program are.
8.5.2009 6:30pm
Crunchy Frog:
Good news is, in a few months your used Honda Civic is going to be worth more than it would otherwise, as the C4C program mandates that at least the engines of the turned in cars be destroyed - hence, creating an artificial shortage of used cars, driving up the price.

Not only that, but after the C4C program ends, car sales will plummet, and dealerships will have to go back to offering incentives to get their product off the lot.

The sad thing is, the real clunkers are being driven by people who aren't going to be able to afford the car payments on a new Ford Focus (or whatever), regardless of whether $4500 is knocked off the sale price.
8.5.2009 6:36pm
axiomthree (mail):
@TRE: Agreed. All I keep hearing is that the program is a success, and needs to be expanded, without any sort of information on what the metrics for success really are.
8.5.2009 6:38pm
Oren:

But okay, past the whining, here's my question. Can you devise a way in which the program could accomplish its goals - and I'm not in principle opposed to getting clunkers off the road - without requiring that the prudent once again subsidize the imprudent?

Raise the gas tax to 100%, offset by a reduction in the income tax and corporate tax to achieve budget neutrality.
8.5.2009 6:41pm
FWB (mail):
Problem is the program is still taking value from one private party and transferring the funds to another private party. The money is not being spent for any of the three limited allowable expenditures enumerated in the Constitution.

The govt has no money of its own and generates nothing. The government can only obtain things of value through taxation, taking from one to give to another. So this program is nothing more than a system of transferring wealth.

Tiocfaidh ar la!
8.5.2009 6:43pm
Vosburger (mail):
If the goals of the program are to simultaneously get the clunkers off the road and prop up the struggling automotive industry then I don't see how you could do better than a sizable gasoline tax coupled with a large cash infusion for the big three. That seems to avoid most of the problems you're worried about as well.
8.5.2009 6:44pm
Kenneth Anderson:
Any possibility that the rise in the value of my 1992 Civic might truly offset the inflated price of the new Civic? Also, any suggestion of ways you might model the supported-price of the new Civic? How much is attributable to the program subsidy, and how would you go about modeling that?
8.5.2009 6:45pm
ginsocal (mail):
"...I was prudent and good enough to think about gas mileage rather than simply buying the SUV monstrosities that the other families in our neighborhood were snapping up."

Jeez. Aren't you special. I hope the self-lauditory back patting didn't break anything. Believe it or not, many of us have to consider factors other than milage when buying a vehicle. I happen to enjoy my original SUV, a '79 Bronco that gets all of 10 MPG. I wouldn't trade it on one of those largely useless tin cans if they offered me twice the money. But, as a true believer in individual choice, I hope you find the non-descript transportation device of your dreams.

BTW, I find the whole CFC program to be a wretched idea, but it may serve as a good warning to those few who still believe the federal government is capable of managing their health.
8.5.2009 6:47pm
Guest12345:

Can you devise a way in which the program could accomplish its goals - and I'm not in principle opposed to getting clunkers off the road - without requiring that the prudent once again subsidize the imprudent?


Instead of giving people who chose gas guzzling vehicles $4,500 to get rid of their "polluting" vehicle, just tax them $4,500 for polluting.
8.5.2009 6:50pm
StanC:
I'm not clear on why you think the only benefit of low mpg is lower costs for you the owner. Or if you don't believe that's the only benefit to you, why you think those other benfits -lower energy use, pollution, etc. are not useful and magnified if other people drive low mpg.

Not to mention, I am sure you believe there other benefits to you, to each of us, of increased GDP activity, in general.
8.5.2009 6:51pm
Steve:
There's a larger goal of economic stimulus for the nation that doesn't factor into your model, and probably can't be factored in.
8.5.2009 6:55pm
cirby (mail):

and probably can't be factored in.


If you can't factor it in, it's something that doesn't have a value, and therefore doesn't exist.

Even something like "I feel better about this program" has a value to someone, or they wouldn't want to spend everyone else's money on it.
8.5.2009 7:02pm
Nathan_M (mail):

Any possibility that the rise in the value of my 1992 Civic might truly offset the inflated price of the new Civic?

If car plants would be operating far below their capacity were it not for the cash for clunkers program, as seems likely, the price of a new Civic may not be inflated by all that much. So this is definitely possible, although I expect it would take a great deal of research to give a definite answer.

Additionally, the price of used 2009 Honda Civics ought to be lower than they would be were it not for the program. Even if you don't have a car that qualifies, you can probably find someone who does who will sell you an almost new Civic at a discount.


Also, any suggestion of ways you might model the supported-price of the new Civic?


Are you familiar with supply and demand curves? In the simplest case, where everyone qualified for the clunkers program, you would model the supposed-price of new Civics by shifting the demand curve up by $4,500. The amount the price would increase would depend on the shapes of the respective supply and demand curves. In a simple case, where Honda Civics are produced in fixed amounts the price would increase by $4,500 (this would be if plants were running with full shifts 24x7). In another simple case, where Civics can be produced at a constant marginal price at any quantity (this may be the case if plants sit underused and skilled workers are unemployed), the price would not increase at all. This is essentially impossible to do with precision in the real world, of course, but it is how things could be modeled.

If, as one hopes, a large effect of the clunkers program is macroeconomic (that is as a Keynesian boost to the economy), as opposed to microeconomic (getting old cars off the road), then this model would not capture those effects.
8.5.2009 7:04pm
FantasiaWHT:
I feel the same way about the house I bought in 2004 that was $100,000 cheaper than the maximum my bank would lend me. Boy, was I stupid, being fiscally responsible.
8.5.2009 7:07pm
Nathan_M (mail):
I should add that the decrease in price of new cars could easily mean that your used 1992 Civic will fall in value despite the decreased supply of other used vehicles. Those two factors will push the price of used Civics in opposite directions, and it is impossible to say which will be stronger based solely on principle.
8.5.2009 7:08pm
Steve:
If you can't factor it in, it's something that doesn't have a value, and therefore doesn't exist.

That makes no sense. Just because something is too complex to calculate doesn't mean it doesn't exist.
8.5.2009 7:09pm
Oren:

Any possibility that the rise in the value of my 1992 Civic might truly offset the inflated price of the new Civic? Also, any suggestion of ways you might model the supported-price of the new Civic? How much is attributable to the program subsidy, and how would you go about modeling that?

Notoriously hard to nail down, since answering it would require knowing average effective sale price -- usually not something dealers let anyone find out about.

Going by my limited knowledge, the average dealer take on a Civic is something in the vicinity of $500-$700. Invoice for the EX 4DR is $18,515.00 so if you can bargain down to $19.25 then you are paying the "unsupported price".

This is just a few steps better than rank speculation tho. Tight credit drives the price of cars down, as does the glut in inventory. To the extent that we don't know how much those factors contribute, we cannot know how much the clunker program is propping up the price (e.g. they could be selling at a much higher discount than they are).

Long story short, I would wait until the program is over (Nov) and try to catch the last of 09's going out the door.
8.5.2009 7:09pm
/:
I'm not clear what the goals of the program are.

Increasing the velocity of money, while at the same time shrinking the economy. "Never waste a good crisis", said an administration official.
8.5.2009 7:10pm
Oren:

In the simplest case, where everyone qualified for the clunkers program, you would model the supposed-price of new Civics by shifting the demand curve up by $4,500.

This neglects the fact that the ports in LA have a large back-log inventory of Civics that were produced because supply could not be dropped fast enough to cope with macroeconomic recession.

If all the clunkers program does is mop up the inventory (i.e. no supply pressure), then the price relative to a few years ago should be fixed. On the other hand, this means that you miss out of the fire sale that would have otherwise been required.
8.5.2009 7:11pm
sonicfrog (mail) (www):
Why buy her a new car? Get a newer used one with airbags (94's and up). You know how much the value drops the instant you drive a new one off the lot, and insurance would almost certainly be higher than used.

As for not qualifying for the rebate, look at the bright side. At least your car is not considered a clunker, like Glenn Reynolds car is.
8.5.2009 7:13pm
jellis58 (mail):



If the goal is to remove polluting (externality creating)cars from the road the program might make sense but my intuition says a steep gas tax would probably be better. IF the goal is to help the economy (Which is what the program is mainly being sold as now): Isnt paying people to destroy their stuff and saying the purchasing of the new stuff to replace it is good for the economy just one big giant broken window?
8.5.2009 7:15pm
Nathan_M (mail):

This neglects the fact that the ports in LA have a large back-log inventory of Civics that were produced because supply could not be dropped fast enough to cope with macroeconomic recession.

The effect of that inventory actually would be shown in this model as the inventory stockpile impacts the shape of the supply curve. The cash for clunkers program itself ought not to effect the short run supply curve of cars, at least in the vastly oversimplified microeconomic model.
8.5.2009 7:19pm
SamChevre:
If the goal is just to get old, very-high-fuel-use cars off the road—if it's an environmental program—then the sensible thing to do would be to set a price floor at each mpg, at which the government will buy the car—no conditions on how the money must be used.

Say, $3000 for cars that get 10 MPG, $2000 for cars that get 15MPG, $1500 for cars that get 20 MPG.

You get the worst cars off the road, pretty cheaply.

If the goal is to increase demand for fuel-efficient cars, then give a rebate (again, scaled by mileage) for fuel-efficient cars.

Tying the two together makes no sense.
8.5.2009 7:20pm
/:
If the goal is to distract you, it's working.
8.5.2009 7:23pm
Steven Lubet (mail):
I don't think that win/win was intended to mean win * (300,000,000).

You are marginally better off, however, because (1) there will be increased demand for your used car; and (2) there will be less demand for gasoline, which will lower the price. You are also better off because you have had the benefit of an economical car for all these years.

But your real problem is just market timing. Car sales had been in the dumps since last summer. You could have purchased a new car at a steep discount, but you passed up the opportunity. Prices go up and down in response to many factors, and the C4C program was forseeable.

Lots of things benefit the public in general while rewarding foolish behavior. Need-based college scholarships tend to penalize the thrifty (who have larger savings and therefore get less aid). Police and fire protection tend to benefit risk-takers. Medical insurance provides more benefits to sedentary heavy drinkers. Nonetheless, we have to enact general policies for the public good.

Now, maybe C4C is a bad idea, but not for the reasons you mention.
8.5.2009 7:24pm
wooga:
How about just setting a minimum mileage cut off (eg 28mpg) and then waiving or severely reducing the sales tax on those cars. That would prompt people to buy new cars, and they would still be turning in their old junkers to get money (and if they keep their old clunkers, they would be relegated to rare driving status - still reducing the pollution effects).

Of course, that does not accomplish real purpose of the program: wealth redistribution in favor of people who have a crappy car sitting around right now (like me).
8.5.2009 7:29pm
thrill:

Can you devise a way in which the program could accomplish its goals

Allow a deduction on federal taxes based on the gas mileage of the vehicle. Let the individual decide what he wants to do with the old car.
8.5.2009 7:42pm
Michelle Dulak Thomson (mail):
Whoever it was who posted here some months back about how we ought to be looking at gallons per mile rather than miles per gallon had the right idea. If what we want is to reduce gas consumed, we want to look at gpm rather than mpg. "C4C" uses the latter, with the result that tiny increments in actual fuel usage merit a big credit.
8.5.2009 8:08pm
scarhill:
Everyone who is trying to design a better version of C4C would be well-advised to read chapter 16 of Charles Murray's Losing Ground, where he walks the reader through a thought experiment on using cash rewards to reduce smoking. He demonstrates how any program you can think of will have unintended consequences--either having no effect or increasing smoking.

Taxes make it possible to create disincentives, so that you at least don't increase the dis-favored behavior, but the unintended consequences problem is still real.

Of course, all of this assumes that the real goal of the program is to take gas guzzlers off the road, while I suspect that real goal of the program was to direct benefits to favored constituencies, e.g. unionized auto workers.

Jim
8.5.2009 8:09pm
Bruce Hayden (mail):
Allow a deduction on federal taxes based on the gas mileage of the vehicle. Let the individual decide what he wants to do with the old car.
Can't have that, because it would increase the deficit and be harder to control. Besides, why is it better that someone drive 100,000 miles in a 25 mpg vehicle over 5,000 a year in a 15 mpg vehicle? My 1996 Suburban 4x4 2500, with GM's biggest engine of the time, may get minimal gas millage, but I doubt that I have driven it 1,000 miles in the year that I have had it. Realistically, it would make more environmental sense to reward me for using much less gas than most, despite having the Suburban, because I live close to work and walk there most days, instead of the guy who lives all the way across LA and has to commute an hour or so each day in traffic, even in a much more fuel efficient vehicle.
8.5.2009 8:16pm
Bruce Hayden (mail):
The reason that it isn't win-win is because it destroys wealth, and the American people are paying for it. Yes, those who participate in the program win, but the rest of us lose. After all, that money being spent to buy and crush the clunkers doesn't appear out of thin air, but rather has to be borrowed (presumably from the Chinese), and repaid by our children. So, as with most government programs, most lose, and some win at their expense.
8.5.2009 8:20pm
/:
Realistically, it would make more environmental sense to reward me for using much less gas than most, despite having the Suburban, because I live close to work and walk there most days, instead of the guy who lives all the way across LA and has to commute an hour or so each day in traffic, even in a much more fuel efficient vehicle.

You're missing the big picture. How is the government supposed to transform society without the will to greatness?
8.5.2009 8:21pm
Bill Poser (mail) (www):

The govt has no money of its own and generates nothing. The government can only obtain things of value through taxation

Not true. The government receives income from government lands (mineral rights, stumpage, etc.) and from fees.
8.5.2009 8:32pm
/:
The government receives income from government lands (mineral rights, stumpage, etc.) and from fees.

That's right. In order to destroy the banking and medicine industries, we need more than miniral rights: we need precious Chinese dollars.
8.5.2009 9:01pm
DiversityHire (mail):
There's no way to make a program like C4C fair, cost effective, or worthwhile.

That said, don't despair: prudence is its own reward. You're in a position to buy a car for your daughter because of your prudence.

If that's cold comfort, then realize that imprudence isn't a one-shot deal. You can seek-out the imprudent relatively easily using online advertisements from, say, craigslist. Look for signs of pending payments, foreclosure, bankruptcy, etc., across the site (look for phrases like "must sell by friday", "or best offer", "take over payments"). Collect the phone numbers and use these to search for a car you want to buy (on craigslist or otherwise). Contact people in the late afternoon or evening and find-out what their need for cash is. Make a cash offer based around that need and take the car home. The deals can be very good, in-line with those on the broker side of a pawn shop: a 12-month-old BMW for 30% of its original MSRP, a 9 mo. old GMC truck for 3 months' mortgage. It's time consuming and your choice of cars is limited, but you're benefitting from government programs that subsidized the imprudent at the expense of the prudent.
8.5.2009 9:04pm
guy in the veal calf office (mail) (www):
There is a lot of disinformation in your post that travels just below the surface. I don't think the White House can keep track of all this fishiness, so I'm afraid I'll have to report you Mister Anderson.
8.5.2009 9:09pm
MarkField (mail):
I think the prudent have been subsidizing the spendthrift since at least the ant and the grasshopper.

That aside, I think you're overlooking the factor of sunk costs. Yeah, you were prudent and they weren't, but that all happened years ago. The only issue now is what's the best way to go forward from where we actually are (as opposed to where we might have been) now.

As I see it, you gain the following:

1. Reduced demand for gasoline should lower the price below what it would have been if the clunkers had stayed on the road.

2. Fewer greenhouse emissions due to lower gas consumption.

3. Less pollution -- modern cars tend to be much better.

4. Keynesian stimulus.
8.5.2009 9:09pm
guy in the veal calf office (mail) (www):
btw, no love for motorcylists? Anyone riding with a carburetor could get triple the mileage by upgrading to a BMWF800. Why no cash for that?
8.5.2009 9:11pm
DiversityHire (mail):
guy in the veal calf office, if the gov't subsidized radness the radness would go away. Why can't Americans build bikes that beautiful and rad?
8.5.2009 9:20pm
DiversityHire (mail):
A slightly used Honda Civic is "something like a new Honda Civic." If C4C moved people from used to new cars, then you get the benefit of slightly-reduced demand for used Civics. You can get a nice, certified Civic from a dealer. Buy one with a manual transmission, they're usually cheaper, get better gas mileage, and teach your kid a cool trick (shifting).
8.5.2009 9:26pm
Jimmy Moon (mail):
Maybe I am approaching this too simplistically. It seems that the alternative that most people are advocating is simply raising the gasoline tax. However, increasing a tax that is already one of the most regressive taxes on the American consumer doesn't seem likely to gain widespread support from Democrats, no matter how environmentally-conscious. Further, it seems like that approach would bring about the same result as the "cash for clunkers" program, which is providing benefits primarily for the middle- and upper-classes.

In my opinion, government money is better spent by investing as much as possible in technology that will increase efficiency and reducing the manufactured cost. I think most car buyers are able to do the math and realize how much money they save by buying a car that gets 35 mpg over one that gets 25. Facts like can provide plenty of incentive to buy a more eco-friendly vehicle, assuming the extra cost of the more fuel-efficient car justifies it.
8.5.2009 9:32pm
Oren:

That aside, I think you're overlooking the factor of sunk costs. Yeah, you were prudent and they weren't, but that all happened years ago. The only issue now is what's the best way to go forward from where we actually are (as opposed to where we might have been) now.


Part of the problem with the "sunk costs" analysis is that it neglects the extent to which enriching those who make poor decisions* causes the balance of future decisions to be worse, since it increases the relative buying power (aka decision power) of those most likely to make bad decisions.

IOW, the government should be rewarding (or at least not penalizing!) Ken not only because he made good decisions in the past but because he is likely to make good decisions in the future.

* The assumption here is that the quality of decisions that a person makes are non-trivially correlated -- those that chose well during the aughts are more likely to chose well in the teens. I think this is more than reasonable.
8.5.2009 9:37pm
Ellen K (mail) (www):
Here's what bothers me about the plan. I have seen how they basically destroy the cars, which have to be running to be eligible for the program. Since there are many people out there who cannot afford a new car even with this massive bailout rebate, it just seems wasteful to take an already working car, even if it is twelve years old, and destroy when a poorer family driving a really old and polluting car could possibly afford a used car. I am thinking specifically of my Chevy Venture van. It's a 1997. It's paid for and except for no A/C, it runs fine. I large family could make good use of that car for traveling safely and more efficiently than the big old nasty Suburbans that so many of these families seem to drive. It's just wasteful. And I guess that's the watermark of DNC Obama wrought programs, they don't see the endgame they just see their own narrow objectives. And they act on that even when it doesn't make sense.
8.5.2009 9:39pm
JamesFromPittsburgh:
Kenneth,

How about if the government offered you the subsidy for selling your non-clunker to someone with a clunker (or trading it in at the dealer)? Rather than destroying your used car it could then, you know, be resold. This would increase the supply of used non-clunkers, giving clunker owners more options to choose from rather than just new cars.
8.5.2009 9:43pm
tbaugh (mail):
I'm with you except for this: "I was prudent and good enough to think about gas mileage rather than simply buying the SUV monstrosities that the other families in our neighborhood were snapping up."

Try getting 3 government-mandated (no complaint about that) car seats for children 1 to 7 in your Honda Civic back seat, along with related paraphernalia. I trust it's not yet civic irresponsibility to have more than 2 children, and larger vehicles are pretty much a necessity at 3, absolutely at 4 (and again, I hope we're not to the point of criticizing those with larger families).
8.5.2009 9:43pm
Yao (mail):
Just out of curiosity, Professor Anderson, do you take a tax deduction on your mortgage payments?
8.5.2009 9:43pm
GatoRat:
I'm not clear what the goals of the program are.

Politicians buying votes. Also the reason the stimulus spending is being "delayed." Expect to see a flurry of spending next spring.

* * *

RE: Reduced emissions of new vehicles. This is only partially true. The huge leaps forward were made in the late 70s and early 80s (which is one reason cars in those years were so blasted unreliable.)

Hondas, however, have been extremely low in emissions since the 70s. A 1979 Civic CVCC ran on regular gas and could still pass emission tests into the late 90s. (In the late 90s, I owned an Olds Custom Cruiser wagon with a 455 that had insanely low emissions. Until the day I sold it to a demolition derby driver, it could pass emissions tests without being grandfathered.)
8.5.2009 10:03pm
guestagain (mail):
Instead of giving people who chose gas guzzling vehicles $4,500 to get rid of their "polluting" vehicle, just tax them $4,500 for polluting.

God I hope the congress does this. The unintended consequence will be delightful to watch. And a completely new congress might actually be better, probably no worse.
8.5.2009 10:06pm
MarkField (mail):

Part of the problem with the "sunk costs" analysis is that it neglects the extent to which enriching those who make poor decisions* causes the balance of future decisions to be worse, since it increases the relative buying power (aka decision power) of those most likely to make bad decisions.


I think this argument cuts too far. Doesn't it negate "sunk cost" analysis altogether?


The assumption here is that the quality of decisions that a person makes are non-trivially correlated -- those that chose well during the aughts are more likely to chose well in the teens. I think this is more than reasonable.


I'm skeptical of this. The ability of anyone to predict the future is pretty limited. I see no reason to believe that because someone was right in the past, s/he'll be right the next time. I see it as more like random guessing with regression to the mean.
8.5.2009 10:15pm
Pro Natura (mail):
guestagain wins the thread!
8.5.2009 10:17pm
Tenrou Ugetsu (mail) (www):
Personally, I think the cash for clunker program is an excellent way for everyone to reduce their carbon footprint. I think most people would hardly be self-inclined to get rid of their old gas-guzzling pollution machines without some throwing money at them. They'd probably just drive it until the car is no more. Such is the human nature.
8.5.2009 10:36pm
Oren:


I'm skeptical of this. The ability of anyone to predict the future is pretty limited. I see no reason to believe that because someone was right in the past, s/he'll be right the next time. I see it as more like random guessing with regression to the mean.

You don't think there's any correlation in the quality of an individual's decision over time? None at all?

You did't need to predict the future to know that buying an Escalade is a bad decision. Everyone knew it, but many Americans did not think that deferring their immediate satisfaction for long term benefit was a worthy investment (see also: negative savings rate).

You are right that a subset of people in hard times did nothing wrong and just got the wrong end of the stick. On the other hand, it strains credulity to imagine that no one in dire straits got there because of irresponsibility and, if given the chance, will likely be just as irresponsible again.
8.5.2009 10:49pm
Bryan Gividen (mail):
<blockquote>
How about if the government offered you the subsidy for selling your non-clunker to someone with a clunker (or trading it in at the dealer)? Rather than destroying your used car it could then, you know, be resold. This would increase the supply of used non-clunkers, giving clunker owners more options to choose from rather than just new cars.
</blockquote>
In a similar vein, it seems like there is a privatized transaction that utilizes the C4C program that could result in a pareto improvement.*

Ken trades his Honda to a car owner who cannot afford to purchase a new car, but who has a car that qualifies for the program. Assuming Ken's car is valued below $4,500 by Ken, then the clunker could be put to use by Ken for $4,500. The other car owner has a better vehicle as well.

*It's a pareto improvement for Ken and the other car owner - I'm a little tired to examine the effects outside of them.
8.5.2009 10:52pm
Oren:
Bryan, the clunker trade in must have been owned and operated for a year to be traded in.
8.5.2009 11:00pm
Guest12345:
Tenrou Ugetsu:

Personally, I think the cash for clunker program is an excellent way for everyone to reduce their carbon footprint. I think most people would hardly be self-inclined to get rid of their old gas-guzzling pollution machines without some throwing money at them. They'd probably just drive it until the car is no more. Such is the human nature.


This is literally impossible. The original billion dollar budget, at the lower price point ($3,500), would only cover 285,000 transactions. Even tripling that with another two billion added into the budget only brings you to 855,000 cars traded in. According to the USDOT the number of registered vehilces as of 2007 were 136 million cars, 110 million trucks, and a million buses. Non-registered vehicles will add a bit to that number. 855,000 is much much less than 200+ million.

Given that, apparently, there are something like 16 million new cars sold annually, I'm not even sure that this is going to make much of a dent in the automobile supply.
8.5.2009 11:20pm
Bryan Gividen (mail):
Yeah, I recognized I didn't explain that clearly enough in my original post. That is my recommendation for change - have the system allow a transfer between private parties conditional. A "one-per-family" limit might be beneficial to prevent re-sellers from being fully subsidized by the gov't.
8.5.2009 11:20pm
Raoul (mail):
TYPICAL AMERICAN; UNLESS THERE IS SOMETHING IN FOR YOU, SCREW IT. NO WONDER THIS COUNTRY IS GOING DOWN THE TOILET. A LITTLE CHARITY WOULD GO A LONG WAY.
8.5.2009 11:24pm
MarkField (mail):

You don't think there's any correlation in the quality of an individual's decision over time? None at all?


Not when it comes to large scale social/political/economic issues, no. Any such ability would contradict the efficient markets hypothesis. We can only identify winners after the fact.


You did't need to predict the future to know that buying an Escalade is a bad decision. Everyone knew it, but many Americans did not think that deferring their immediate satisfaction for long term benefit was a worthy investment (see also: negative savings rate).


I think your second sentence contradicts the first. If buying SUVs was such a mistake, an awful lot of Americans made it. And they were encouraged to do so by those who pooh-poohed the impact on the environment, the long term future of oil, etc.
8.5.2009 11:33pm
Oren:

Not when it comes to large scale social/political/economic issues, no. Any such ability would contradict the efficient markets hypothesis. We can only identify winners after the fact.

I'm not talking about people that bet wrong on the stock market -- I'm talking about people with severe mismanagement of their personal finances. The kind of people that would 'purchase' (with debt, of course) a Cadillac Escalade instead of, I don't know, any other automobile for sale at the time.

I'm willing to wager that debt/equity, exotic mortgages, large credit card balance, payday borrowing and the various other bad habits of the American consumer have significant positive correlation with Escalade ownership. And that the same people that made mistakes last time will, on average, make them again.

[ Also, it occurs to me that the efficient market hypothesis says nothing about the time-correlation of winning. IOW, given some average description of the quality of decision-making the macroscopic health of the market does not change as you vary the distribution. Regression to the mean doesn't require that the same people by, on average, acting to cancel out fluctuations but it doesn't forbid it either. ]


And they were encouraged to do so by those who pooh-poohed the impact on the environment, the long term future of oil, etc.

All the more reason to shift cash as fast as possible away from the immediate gratification crowd.
8.6.2009 12:09am
MarkField (mail):

Also, it occurs to me that the efficient market hypothesis says nothing about the time-correlation of winning. IOW, given some average description of the quality of decision-making the macroscopic health of the market does not change as you vary the distribution. Regression to the mean doesn't require that the same people by, on average, acting to cancel out fluctuations but it doesn't forbid it either.


I think it does require this. Otherwise, there'd be consistent winners in the market.


I'm not talking about people that bet wrong on the stock market -- I'm talking about people with severe mismanagement of their personal finances.


Yeah, and I'm trying to exclude that. When I consider the purchase of an Escalade in 1992 (assuming they sold them then), I'm talking about the macro consequences of that because I think those are what the post was getting at in complaining about the impact of the C4C program (maybe I misunderstood, of course) and the wisdom of having bought a fuel efficient car instead. I claim those macro effects aren't consistently predictable.

When it comes to micro (i.e., household management), then I agree that there's a strong correlation involving basic competence at money management.
8.6.2009 12:41am
bender:
If the SUV tax credit had gotten half as much criticism as this CFC deal in the media, we'd be in a lot better shape....

8 years without an energy policy in the pollutingest country in the world was pretty awesome too.

I wonder how strongly one's fuel efficiency correlates with one's political leanings.
8.6.2009 12:50am
theobromophile (www):
But okay, past the whining, here's my question. Can you devise a way in which the program could accomplish its goals - and I'm not in principle opposed to getting clunkers off the road - without requiring that the prudent once again subsidize the imprudent?

Well, assuming that government subsidies are okay, there are ways to do this.

Flip the entire qualification scheme around. Require:

1) there be at least a 5 mpg improvement in fuel economy (more than the current 2 mpg - ridiculous) AND

2) that the combined fuel economy of the clunker and the new car be 50 mpg.

If you bought a SUV that gets 15 mpg, then the new car would have to get 35 mpg. People who bought gas guzzlers would have to work a lot harder to meet the second requirement. People who have old, old cars that are somewhat fuel-efficient (20, 25 mpg) would easily be able to meet both requirements.

Do I get a prize? Or a beer? (or a glass of wine?)
8.6.2009 12:54am
DiversityHire (mail):
theobromophile, that's a vast improvement, a clever idea given the assumption that subsidies are OK.
~
Is there a big Bender and a little bender in here? I had no idea there was an SUV tax break.
8.6.2009 1:06am
Floridan:
Professor Anderson's argument seems akin to that of the childless couple who complain that they have to pay school taxes, but receive no direct benefit.
8.6.2009 8:33am
Keith Jackson:
theobromophile - actually your second point is a bad idea, as would be readily apparent if we would switch from MPG to GPM. Under your requirements, someone who trades in a car that gets 22 MPG for one that gets 28 MPG would qualify. That is only a savings of 95.5 gallons per 10K miles. On the other hand, someone who trades in a car getting 15 MPG for one that gets 21 MPG (the same MPG improvement as the previous transaction) would not qualify because the total mileage is <50 MPG. However the latter transaction actually saves 190.5 gallons per 10K miles.
8.6.2009 9:13am
peter dublin (mail) (www):
Dealers are forced to destroy perfectly good cars.

There are deeper reasons why the scheme is wrong

Presumably it's to save on oil:
Yet fuel efficient cars effectively means cheaper energy which in turn means they will be used more (instead of, for example, using public transport)

Fuel efficiency is of course an advantage people can consider when buying a car - and can compare with advantages that inefficient cars can have (speed or greater safety because of greater weight, etc, as well as a probably lower price - or they would be efficient already).

As far as government is concerned, any oil shortage - for geopolitical or economic demand reasons - raises the gasolene price and - guess what - increases demand for fuel-efficient cars anyway, no need to legislate for it.

Another reason is that - as research at Georgia Tech has shown - it is possible to clean emissions of CO2 (and other substances at the same time).
A fuel-neutral emission tax on cars therefore makes more sense:
If it is economical to make gas-guzzling cars with emission processing, then again, there is no reason for government to prevent it.

Any regulatory measures should therefore focus on emissions, rather than the fuel used, and emission taxation on cars retains consumer choice, while also giving significant government income with the lower sales of such cars, income that can go to projects that themselves lower emissions eg electric car manufacturing subsidies etc.
(Regardless of whether CO2 reduction makes any sense, lowered emissions of course have their own benefit, for all the noxious sulphur etc substances that the emissions also contain)

For more see http://www.ceolas.net/#cc25x
Why all energy efficiency regulation is wrong - from light bulbs to buildings http://www.ceolas.net/#cc2x
8.6.2009 10:33am
Nick P.:
I am trying to figure out how it is a win for me, in anything other than an abstract social goodness sense.

How about this: IIRC, the majority of trade-ins are SUVs and pickup trucks. The most popular replacement vehicles are the Toyota Corolla, Ford Focus, and Honda Civic. Therefore, cash for clunkers is making your Beloved Daughter safer by decreasing the percentage of vehicles that would squash her civic like a bug in a collision.
8.6.2009 10:56am
will47:
Maybe you should just buy your daughter some sort of SUV or larger pickup truck. The C4C program is presumably driving down demand for such vehicles even further, so the price should fall as well. Because you don't seem to drive much, you will be penalized less than average by the lower fuel efficiency.
8.6.2009 11:34am
fishbane (mail):
Meh. I don't get the anger over the program. It is pretty weak sauce in auto subsidies, really. After 9/11, we got a tax scheme that was effectively a 50% write-down on buying huge SUVs, a much larger windfall than this one. Where were the complaints then?

For that matter, where are the complaints about keeping gas cheap through all sorts of complicated subsidies? Fiscally responsible people who don't drive much should be up in arms about all those wastrels driving all over the place on their backs.
8.6.2009 12:08pm
Deraj:
1. You don't have a clunker. You have a reliable, non-gas guzzling vehicle. Way to go.
2. Buy your daughter a used car. That's how you acquired your current Civic.
3. You're looking at this all wrong (and in the manner that you would normally criticize someone else looking to get some government cheese, e.g., "Hey, there's a government program. How do I get me some of that?"). The goal of the program isn't to allow everyone to get a new car cheap. The goal is to improve the environment by getting gas guzzling emitting clunkers off the road and to benefit the economy by encouraging people with crappy cars to trade up.
8.6.2009 12:24pm
Dan Weber (www):
Scrapping a car has an environmental impact. Keeping old things running reduces waste. At a certain threshold getting a very polluting old car off the road is worth the cost of scrapping it, but I'm not sure the CARS program's cars meet that requirement.

As for reducing energy usage, besides Oren's too-obviously-right-to-work gas tax:

Free tune-ups for every American. Free installation of air pressure sensors. Free ScanGuage's for anyone who asks. Improve the existing cars.
8.6.2009 12:38pm
theobromophile (www):
Keith: but under the current rules, you could trade in a car that gets 18 mpg for one that gets 20 mpg (right?); at least under my system, you could trade in a car that gets 25 mpg for one that gets 45 mpg.

While I understand the desire to get inefficient vehicles off the road, if you insist on using gallons per thousand miles, you're always going to reward people for having bought gas guzzlers back when gas was $1/gallon. Prof. Anderson wanted to avoid that.

(I also disagree with the gallons/mile because you simply cannot assume that mileage is constant. While a lot of people do use SUVs to commute to and from work, that is their own - IMO, stupid - choice. I do know several people with a pick-up truck or a SUV and a motorcycle; they use the latter for normal commuting and the former for hauling big things around. Or soccer moms use the minivan to take the kids around town - 10 miles a day - while their husbands use their cars to drive 40 miles each way to work. The real gas savings comes from getting people to trade in their commuter cars.)
8.6.2009 12:45pm
Oren:

I think it does require this. Otherwise, there'd be consistent winners in the market.

First, you increased the strength of my assertion from "significantly correlated" to "consistent" -- I don't not appreciate that :-P.

Second, the market prices in all known information because people analyze that information in order to make their decisions. Without that analysis, there could be no efficient market.


I'm talking about the macro consequences of that because I think those are what the post was getting at in complaining about the impact of the C4C program (maybe I misunderstood, of course) and the wisdom of having bought a fuel efficient car instead. I claim those macro effects aren't consistently predictable.

When it comes to micro (i.e., household management), then I agree that there's a strong correlation involving basic competence at money management.

My assertion is that the micro-competent will, on average, make decisions that improve the macro situation. That is, one should know solely for micro reasons that an Escalade provides no real additional utility over an Accord and, not coincidentally I assert, also turns out to be the best decision macro-speaking.

That is, the micro-favorable and the macro-favorable solutions are significantly correlated (again, not consistently the same).

Isn't that effectively a restatement of the efficient market hypothesis -- that people are induced (e.g. they are micro-favorable) to transactions that are macro-favorable (e.g. they correct fluctuations)?
8.6.2009 12:54pm
CCTrojan:

Try getting 3 government-mandated (no complaint about that) car seats for children 1 to 7 in your Honda Civic back seat, along with related paraphernalia. I trust it's not yet civic irresponsibility to have more than 2 children, and larger vehicles are pretty much a necessity at 3, absolutely at 4 (and again, I hope we're not to the point of criticizing those with larger families).


Buy a minivan. They are made specifically for that purpose and get better mileage than the big SUVs. I've had a Toyota Sienna for a few years now and if you're really someone who has had to fit 3 car seats in a car you probably know how hard it is to get kids into the back seat in a parking lot without dinging the car next to you. Sliding doors make it so much easier.

Having more than two kids does not require one to drive a Suburban or an Expedition.
8.6.2009 12:58pm
zzyzx:
The goal of this program appears merely to be encouraging the sales of vehicles with a greater mpg at this specific moment. I am skeptical of what effect this will have on jump starting the economy, though I am sure it helps a very tiny bit as it encourages purchases along the fringe that would not have occurred otherwise.

But it is not clear to me why everyone seems to think that getting a new car with a big number next to mpg is better for the environment. It is so axiomatic that nobody bothers to explain why this is inherently good. Is it? What about all of the manufacturing, raw materials, and transportation costs associated with building a new car? Should we be encouraging that, if we truly cared about the environment? Maybe it would be better to prolong the life of cars that pollute more, as compared with destroying them in order to build new ones. Moreover, it can be argued that a Prius is worse for the environment than some of its gas guzzling competitors. See, e.g., http://hubpages.com/hub/Prius (espousing that the popularly heralded environmental champion Prius might, upon further analysis, not be as environmentally benign as first appeared when considering externalities beyond those only associated with carbon ouput based on the fuel consumption).
8.6.2009 1:28pm
Michelle Dulak Thomson (mail):
theobromophile,

I don't understand your objection to gpm rather than mpg.

While I understand the desire to get inefficient vehicles off the road, if you insist on using gallons per thousand miles, you're always going to reward people for having bought gas guzzlers back when gas was $1/gallon.

Well, we need to decide how much we want to reward past virtue vs. how much we want to, I don't know, lower our consumption of gasoline. Is the goal to reduce our gas consumption? Because if that's what we want, subsidizing the replacement of the least efficient vehicles makes sense — certainly more sense than requiring the guy with a 14 mpg behemoth to replace it with something running 36 mpg in order to get a credit. Your plan will result in reasonably efficient cars being traded in for the credit, while the real guzzlers remain on the roads.

Your other point, about trucks/SUVs used only for short trips or hauling stuff or ferrying kids, makes no more sense to me. If that's what you actually use the vehicle for, something getting 35+ mpg is unlikely to do the job anyway, so you are unlikely to take the deal.
8.6.2009 1:30pm
theobromophile (www):
Michelle,

Let me explain a bit more.

First of all, any plan is going to be imperfect. I'm selling mine as an improvement, not perfection.

Your points don't make any sense to me, either. We're obviously coming at this from different angles.

Your other point, about trucks/SUVs used only for short trips or hauling stuff or ferrying kids, makes no more sense to me. If that's what you actually use the vehicle for, something getting 35+ mpg is unlikely to do the job anyway, so you are unlikely to take the deal.

They shouldn't take the deal, anyway. If someone drives a SUV, getting 15 mpg, for 2,000 miles a year, that's 133 gallons of gas used a year. If he were to trade it in for a minivan or crossover getting 20 mpg, he would use 100 gallons of gas in a year. So we would be paying him $4,500 to save 33 gallons of gasoline in a year - or $136 per gallon.

I'm absolutely gobsmacked by the idea that we should want those people to take the deal.

The people we should want to take the deal are those who would trade in their commuting cars for something really fuel-efficient - like a SUV for a hybrid sedan. Running the numbers on the normal 12,000 miles per year, with 15 mpg and 35 mpg, we get a savings of about 450 gallons per year - or about 14 times as much as the example above.

(To further explain: that person's gas savings alone - about $1,100/year - would more than offset the few times they might have to rent a larger car or use two cars to get somewhere.)

Your point, as I understand it, is that you get the same gas savings from going from 15 mpg to 20 mpg as you do from 20 mpg to 30 mpg. That's my point, too - encourage those people to continue to trade up. Get the fuel-hogging commuter cars off the road and have everyone drive a Prius to work. It's total gallons, Michelle, that really matters.

(Note as well that my plan would make reasonably efficient cars available for resale. The effects of fuel economy savings could be multiplied.)
8.6.2009 1:58pm
Barry D (mail):

Or if you don't believe that's the only benefit to you, why you think those other benfits -lower energy use, pollution, etc. are not useful and magnified if other people drive low mpg.


There are several reasons.

Studies have shown, pretty consistently, that overall fuel consumption does not drop when aggregate MPG rises. People drive more, when it costs them less per mile. The "lower energy use" argument is not valid -- and that doesn't even take into account the energy used to build the new car and destroy the old one.

WRT pollution: these cars are relatively modern EFI cars with catalytic converters. We're not replacing 1962 Fairlanes here; we're replacing vehicles that aren't gross polluters.
8.6.2009 2:04pm
Joe The Plumber (mail):
Fewer greenhouse emissions due to lower gas consumption.

Basic economics instructs that once you make something cheaper (costs per mile driven) people will use more of it.

Fuel efficient cars do not translate to lower gas consumption.
8.6.2009 2:13pm
Joe The Plumber (mail):
8 years without an energy policy in the pollutingest country in the world was pretty awesome too.

Huh?
China is the biggest polluter in the world.

Further, are you suggesting the United States has no energy policy?

I wonder how strongly one's fuel efficiency correlates with one's political leanings.

I know one thing, if you're a leftist you're more likely to buy a foreign car. But remember, you support unions!
8.6.2009 2:23pm
Joe The Plumber (mail):
I'm not clear what the goals of the program are.

There are no goals. It is simply another constituency that has successfully lobbied for a subsidy.
8.6.2009 2:25pm
Mike Z (mail) (www):
It strikes me as insane. Why would anybody willingly destroy useful assets? Some of those "clunkers" may be on their last wheels, but the video going around shows a Volvo with its engine being run till burnout. Any Volvo with less that 400,000 miles on it is still in great shape.

They could even send them to third-world countries - generating jobs in shipping.

Did anybody ask how much pollution was generated by running that engine for so long? (BTW, it's a great ad for Volvo. How many GM engines would run that long under those conditions?)

What they've done is remove from circulation older model cars, the ones that are the natural choice of first-car buyers like college students and people struggling to make ends meet.

Choosing "GPM" vs "MPG" makes no sense. Tyey're just two different ways of measuring the same thing. A third way is liters per kilometer. If you know MPG you can easily figure GPM. Or G/10,000M.

"Your point, as I understand it, is that you get the same gas savings from going from 15 mpg to 20 mpg as you do from 20 mpg to 30 mpg."

Not really. Going from 15 to 20 is a 33% saving; going from 20 to 30 is 50%.

But the bottom line is, it's senseless to destroy prefectly good cars - especially by running the engines till they sieze up. But then, what else can we expect from the current administration.
8.6.2009 2:26pm
Curly Smith:
It's a double-whammy: the subsidy creates an artificial demand which will increase the cost of new cars and the program will also increase the cost of used cars by artificially decreasing the supply of used cars by ~500,000.
8.6.2009 2:30pm
Joe The Plumber (mail):
Is Cash for Clunkers Really Win-Win, as Representative Carnahan Says?

Considering we could fit what Rep Carnahan knows about economics into a thimble, no.
8.6.2009 2:30pm
Real American (mail):
We're just supposed to shut up and do as we're told by our new ruling elites. since this is a fishy blog post, the White House must be notified of your questioning their infallibility.
8.6.2009 2:44pm
jawats (mail):
I do not think it's "win / win" unless you are referring to the isolated view promoted. Yes - somebody gets a better car, with better mileage, at a lower price. We must, in the process, ignore the potential environmental damage of producing a new car. We must also ignore (as I discovered today) that the scrap metal market, already in difficult straits, is being further damaged and small dealers, including combination used car dealer / scrap yards are being hit even harder due to the program than they otherwise would be. They cannot afford to pay for and scrap / renovate old cars, nor can they resell / recycle the scrap they have already purchased.
8.6.2009 2:47pm
theobromophile (www):
"Your point, as I understand it, is that you get the same gas savings from going from 15 mpg to 20 mpg as you do from 20 mpg to 30 mpg."

Not really. Going from 15 to 20 is a 33% saving; going from 20 to 30 is 50%.

Mike: let's first agree that Volvos are amazing cars. :)

Now, on to mpg v. gpm: if you drive 12,000 miles in a year, at 15 mpg, you'll use 800 gallons of gasoline; 20 mpg, 600 gal (difference = 200); 30 mpg, 400 gal (difference btw. 20 and 30 = 200 gallons, again).
8.6.2009 3:02pm
Steve A:
Wow, what a straw argument you set up. You reduced your entire buying field to 1 model out of how many small reliable new cars? How ridiculous is that.
There are dozens of comparible(or better) models to the civic, yet you dismiss them out of hand.
8.6.2009 3:06pm
John Bono (mail):
This isn't win/win, just the opposite. The used car business suffers, because drivable cars are being destroyed. The poor and unemployed suffer, because having reliable transportation is a fundamental requirement for getting a job, and 90% of the US is uncommutable except by automobile. Parts suppliers suffer because a good source of autoparts, old cars, are destroyed. The poor suffer again, because a source of replacement parts for their cars, other old cars, are destroyed. Collectors of old cars suffer, because the supply of collectible cars of that vintage dries up.(I saw a mid '80s Mercedes S class headed for the shredder)

For car guys, the next 10 years are going to be a replay of the '70s. Crappy slow cars that the powers that be will try to convince us are really great and cool. A land of Priuses sitting on bicycle tires. Ick.
8.6.2009 3:24pm
GatoRat:
You did't need to predict the future to know that buying an Escalade is a bad decision.

Without knowing the circumstances of someone's life, how do you know it's a bad decision? Putting aside whether the Escalade is a well made car, many people, including myself, who purchased cars that got below 20mpg city weighed the pros and cons and found that reduced mileage was more than compensated by other things, such as safety, being able to haul your family and/or friends along with luggage or other items in a single car and so forth. The notion that the only valid criteria for purchasing a car is gas mileage is idiotic in the extreme.
8.6.2009 3:41pm
John H (mail):
Mike Z - you just inadvertently made the point about GPM vs MPG. The trade in of the 15 MPG for a 20 MPG car saves 166 gallons per 10k miles (roughly a year of driving), the 20->25 trade only saves 100 gallons. The use of the MPG standard distorts peoples perception. The assumption is that if I save 5 MPG it's all the same, but moving from a 5->10MPG car(saves about 1000 gallons per year)versus going from a 35->40 MPG vehicle (only about 35 gallons per year), even though both cases save 5MPG! The key is how low the old car's MPG is, not how high the new cars is! The gov doesn't want us to think this way, because then the BIG push to up fleet MPG from 20-25 would lose all it's luster!
8.6.2009 3:43pm
MarkField (mail):

Isn't that effectively a restatement of the efficient market hypothesis -- that people are induced (e.g. they are micro-favorable) to transactions that are macro-favorable (e.g. they correct fluctuations)?


I think you may be arguing for a strong form of the EMH, while I'm using a weak form. See here. Let me try to rephrase my understanding in the context of this post.

As I understand the EMH, no single person should be able to be known in advance as someone who will consistently predict the behavior of the market. There will, of course, be people who in retrospect will have done so (bell curve, lots of players), but we have no way of identifying those people in advance. If we could identify them, we'd simply do what they said.

The way I translate this into ordinary life is, to coin a cliche, that to err is human. We all make mistakes. Individuals will make some right calls and some wrong ones, but by definition we can't define those in advance. We only know that after the fact. People who bought SUVs in 1992 (yours truly bought a minivan that year) had good reasons for doing so (in my case, the need to haul kids around). In retrospect, those decisions were likely less than optimal. The key, though, is that they seemed sound at the time and it was NOT predictable that we'd be wrong. If the prediction were that obvious, we wouldn't have made the mistake.

While I agree that micro decisions make up the market, I disagree that an individual's behavior can predictably call the market.
8.6.2009 3:51pm
BobinDenver (mail):
Hi Kenneth,

I have a 1987 Jeep Cherokee that qualifies (mpg, registration, insurance, and driven). If you're planning on paying cash for the new Civic I'd be happy to supply my vehicle for a portion of the rebate or perhaps your old Civic. I believe we'd both have to be on the sales documentation for it to qualify under C4C.

If you are interested please let me know.

Regards,

Bob
8.6.2009 3:55pm
Floridan:
Joe the Plumber: "Basic economics instructs that once you make something cheaper (costs per mile driven) people will use more of it."

Exactly how elastic is most people's driving? With cheap enough gas, I might occasionally take a car trip instead of staying home or using another means of transportation, although I don't think I'll be driving cross-country just because fuel costs less.

However, my commute to work will remain exactly the same, the distance from my house to the grocery store and my children's school will not increase, and I'm guessing that I will still travel to the closest Post Office, drug store and video store (oops, I don't go to the video store anymore).

Perhaps you see a resurgence of the "Sunday drive in the county?"
8.6.2009 4:38pm
Hugh59:
I did some numbers. First, let's assume that $3 billion in funding results in a blend of $3,500 and $4,500 credits: a 50/50 split would result in about 762,000 cars being traded in. Let's assume that the average MPG for traded in vehicle is 15 MPG and that the average MPG for the replacement vehicle is 28 MPG. Let's also assume that the average vehicle is driven 10,000 miles per year.

The total fuel savings would be about 236 million gallons per year. That sounds like a lot until you consider that the total passenger car fuel consumption is over 70 billion gallons per year (about 75 billion gallons in 2006). We are burning over 192 million gallons per day! So, we are spending $3 billion in order to save a little over one day's worth of fuel consumption.
8.6.2009 4:53pm
Chester White (mail):

The whole damn world is set up to reward the imprudent and lazy.

Tax break phaseouts above certain thresholds, free money for scholarships only for people who have saved no money, higher taxes if you have saved and/or are successful, cash-for-clunkers, bailouts for idiot Wall Street "Masters of the Universe," etc.

I could go on all day.
8.6.2009 5:09pm
jms (mail):
The reason why it is not win-win is that it is destroying the assets of the citizens of the United States -- our civilian automobile fleet.

New cars are very expensive. They are purchased by people with a relatively large disposable income. People with more moderate incomes purchase used cars that are a few years old but functionally nearly new at half the cost. People with low incomes purchase cars with mechanical and cosmetic problems and use them up. People with the lowest income purchase cars in the last few years of their operational lives and use them up.

This is how Americans "spread the wealth" in the private sector. The wealth is car ownership. Transportation independence. In the United States, barring those who live in dense urban areas and plan their lives around public transportation, it is very difficult to hold a job and to function as an independent citizen if you do not own a car. In other words, the used car market is a critical piece of the American infrastructure. It's what allows even the poorest of Americans the freedom of travel.

Cash for Clunkers disrupts this market. It is causing the mass destruction of cars in the middle of their useful life. In the next few years, people working in low to middle income jobs are going to go out looking to replace their cars with vehicles in the $3000-$4000 range. They are not going to find them, because they are being deliberately destroyed right now, leaving a hole in the automobile market. Instead, they are going to have to make do with lessor quality cars, or keep the cars they currently have.

The result will be more true clunkers on the road -- by that I mean the sort of cars that burn oil, shake and rattle, are covered with rust, are old enough to not have airbags, and cars that get poor mileage because the engines are worn out.

It may be a win-win program for those rich enough to afford to purchase a new car, but for anyone looking for affordable used cars in the next few years, it will make it harder and more expensive to acquire safe, affordable transportation.
8.6.2009 5:22pm
gullyborg (mail) (www):
Why not just give everyone a $4,500 tax cut?
8.6.2009 5:37pm
ShelbyC:

Why not just give everyone a $4,500 tax cut?

We'd just put it in the bank.
8.6.2009 5:44pm
Hugh59:
Actually, what they needed was a more targeted program. But that would have been a lot harder to implement.

You could establish a fixed number of "grants" that will be paid to qualifying car owners who want to trade them in. They could fill out an application identifying the car to be traded in and information about its condition and actual fuel economy. The government could then award those grants based on the merits of the applications.

Of course, this would be a much more difficult (and slower) plan to put into effect. But at least the benefits could be better targeted.
8.6.2009 6:15pm
Brian Macker (mail) (www):
Keeping an old clunker running for years on end is extremely prudent. The cost in resources of replacing even a clunker (getting 15 miles per gallon) are worth 150,000 miles in gas costs driving the same car (assuming a new $20,000 car and $2 a gallon gas).

So if you keep a car going for 400,000 miles and therefore save the resources of buying three additional cars (every 100,000 mile), at a savings of 150,000 miles each you've essentially saved the entire cost of a car in natural resources.

What the government is actually do bribing people to act imprudently.
8.6.2009 7:42pm
Oren:



Choosing "GPM" vs "MPG" makes no sense. Tyey're just two different ways of measuring the same thing. A third way is liters per kilometer. If you know MPG you can easily figure GPM. Or G/10,000M.


Usually we express things in a ratio where the denominator is fixed. Most people (that I know) pick out a destination first and drive until they get there meaning they drive a fixed number of miles and pay whatever gas is needed (as opposed to buying a fixed amount of gas and driving until it runs out).

So if you know that a car gets 40 GPTM (gallons per thousand miles) you can quickly compute that a trip from coast to coast (2000 mi) will be 80 gallons. Same for your average monthly or yearly fuel bill.

More importantly, you can instantly compute the savings in gas consumption between a 50 GPTM car and a 40 GPTM -- 100 gallons over an average (10k) year because GPTM numbers can just be subtracted.

On the other hand, the figures 20mpg and 25mpg cannot be subtracted meaningfully.
8.6.2009 9:46pm
Hanoi Paris Hilton:
I actually just did a very quick and dirty work up of the relevant crude energetics (all data from five minutes of Googling), which so far hasn't been addressed at all in the comments here:

Assuming 50K miles remaining service life in the clunkers getting 16 mpg (now being destroyed instead ), the comparative savings in gasoline in a 32 mpg vehicle over those same 50K miles is about 1,600 gallons.

The energy content in a gallon of gasoline is about 130 MegaJoules (i.e., ~35 MJ/l). Producing new steel requires about 22 MJ/kg, while recycling old steel requires about 14MJ/kg. The energy yielded by the 1,600 gallons of saved gasoline is 210,000 MJ, or about enough for smelt a little less than 10 tons of completely new steel, or to reprocess about 15 tons of recycled steel.

I've also seen another set of figures showing production energetics of raw steel at 65 MJ/kg, and recycled steel at about 52 MJ/kg. If those numbers are more correct, the fuel saving allows for producing only 3.5 tons of new steel or 4.1 tons of recycled steel

I further Googled up a figure of 66 giga joules (GJ) as the ballpark energy input required to manufacture a single new motor vehicle, including the metallurgical energetics (as above, plus copper wiring, aluminum components, etc.). One gigajoule is 1,000 megajoules, i.e., 66,000 MJ/vehicle. That figure comes from Ford and is based on Taurus sedan or a F-150 pickup truck.

Ford also offers a lifetime energy consumption of those same models at about 961 GJ = 961,000 MJ, assuming a 120K lifetime mileage yield (which seems insanely low!).

So very roughly speaking, it would take the fuel savings (over 50K miles estimated remaining life in each) of recycling four or five (!) clunkers to account for the lifecycle energetics of only one new vehicle.

No doubt this is a vastly oversimplified analysis, and doesn't at all address the carbon issue at the heart of the global warming hypothesis. Which I won't begin to get into here, other than saying that many, many high-powered scientists not on Dick Cheney's payroll don't accept as legitimate the Al Gore/UN/Obamazoid analyses of either the problem or of the various proposed solutions.

This also doesn't address the personal financial issues of holding onto a fully-paid-for clunker getting 16 mpg, or alternatively taking on a $15,000 auto loan for a 32 mpg vehicle that saves only about $640 in fuel costs (at $2.50 gallon, roughly the present average cost of gasoline in the USA) over the first 50K miles driven. Or only about $170/yr at the typical 10k miles/yr driven by Americans. Of course the maintenance and repair costs of a new car will likely be much lower than of an old clunker over the first 50K miles.
8.7.2009 12:40am
DAve (mail):
How many people in the U.S. pay taxes? 50 million?
$3 billion divided by 50 million people is $60 per taxpayer.
You're NOT winning...
8.7.2009 12:51am
DAve (mail):
I SUSPECT that this whole program is primariliy an effort to get the dealers to back away from the huge lawsuit that was coming from all the G.M. and Chrysler dealerships that were slated to be closed primarily because they had donated to Obama's opponents. Something like 95% of those lated to be closed fit this description.
Call it hush money. I have a really big feeling about this-
8.7.2009 12:59am
Mom:
Cash for clunkers is just an old sales technique, bait and switch. (There's a sucker born every minute!) Only the dealer wins. With everyone competing to "get" their $4500 before the money runs out, they'll buy at any price. The dealer clears out his inventory and then collects a direct feed of cash from the government. Two wins for him.
8.7.2009 1:48am
TruePath (mail) (www):
I think the question in the post blurs two different questions:


1) Is Cash for Clunkers a net positive for the prudential consumers as compared to doing nothing (or perhaps even politically plausible measures).

2) Is implementing Cash for Clunkers as opposed to a carbon/gasoline tax and/or some more efficient economic stimulus package a subsidy for the imprudent/selfish.


---

The answer to 2 is clearly yes. Hell, every single subsidy, tax credit or carbon credit giveaway we pass instead of a carbon tax (or an impossibly sane cap &trade) is taking money out of the pockets of responsible prudential americans and handing it over to those who behaved poorly. When the government gives any breaks on insulation, more fuel efficent vehicles, etc.. etc.. they are transfering money from those who played nice early to those just jumping on the bandwagon.

Ohh, and somehow I suspect that this wasn't what the economists would have suggested if they had a free hand without car dealer lobbying.

----

However, 1 is the question that matters because the American people seem to be too damn stupid to understand how a revenue neutral carbon tax could work and the businesses who expect free carbon credits are making sure they stay that way.

So sure, it's non-optimal but it still reduces a negative externality so even the prudential might be better off. Sure it's unfair if your neighbor says, "pay me $10 and I'll stop dumping toxic waste in your yard," but if that's your only option it might be a good one.

Also remember the economy is not zero sum so if there is a stimulus effect it is at least possible that the benefit you recieve could be greater than the transfer you are paying out
8.7.2009 2:10pm
Bob Goodman (mail) (www):
They could've mandated what NJ did: ratchet up emissions cutoffs until older cars could no longer pass inspection.
8.7.2009 2:46pm

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