“Cash for Clunkers”

“Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Here’s my humble suggestion: “Cash for Clunkers,” the best stimulus idea you’ve never heard of.

Cash for Clunkers is a generic name for a variety of programs under which the government buys up some of the oldest, most polluting vehicles and scraps them. If done successfully, it holds the promise of performing a remarkable public policy trifecta — stimulating the economy, improving the environment and reducing income inequality all at the same time. Here’s how.

A CLEANER ENVIRONMENT The oldest cars, especially those in poor condition, pollute far more per mile driven than newer cars with better emission controls. … So we can reduce pollution by pulling some of these wrecks off the road. Several pilot programs have found that doing so is a cost-effective way to reduce emissions.

MORE EQUAL INCOME DISTRIBUTION It won’t surprise you to learn that the well-to-do own relatively few clunkers. Most are owned, instead, by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.

AN EFFECTIVE ECONOMIC STIMULUS With almost all the income tax rebates paid out, and the economy weakening, Cash for Clunkers would be a timely stimulus in 2009. …. And the quickest, surest way to get more consumer spending is to put more cash into the hands of people who live hand-to-mouth.
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Cash for Clunkers is not the pipe dream of some academic scribblers. Local variants are either now in operation or have been tested in California, Colorado, Delaware, Illinois, Texas, Virginia and several Canadian provinces. …
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And what would all this money buy? First, less pollution. … Second, the subsidy value [a 20 percent proposed premium over current value] is a direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive — not just the subsidy, but the entire payment, giving the economy a much-needed boost.

Oh, and I left out a fourth possible goal. By pulling millions of old cars off the road, Cash for Clunkers would stimulate the demand for new cars as people trade up. It need hardly be pointed out that our ailing auto industry, like our ailing economy, could use a shot in the arm right now. Scrapping two million or more clunkers a year should help.

With today’s concerns over stimulus, inequality and greenhouse gases, as well as an aging vehicle fleet, Cash for Clunkers is an idea whose time may finally have come. Write your congressman.”

Alan S. Blinder, “A Modest Proposal: Eco-Friendly Stimulus”, The New York Times (27 July 2008).

http://www.nytimes.com/2008/07/27/business/27view.html?ex=1374811200&en=a19470300b516a2f&ei=5124&partner=permalink&exprod=permalink


Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.

I enjoyed reading this proposal, as I thought it is a good idea. The problem is there are thousands of good ideas like this that one could dream up, each with merit and each with its own targeted beneficiaries. Why not do them all?

Because it would be better not to do any of them. Why? For two reasons: First, the government is broke, and it should not be thinking about increasing its spending but rather making every effort to slowly ramp down its now out of control expenditures. Moreover, because of the ageing of the U.S. population, existing budgetary pressures are about to rise substantially, and any new program will only add to the difficulties of the adjustment already before us.

Second, when an idea like this, even a good idea like this, is taken seriously it opens the door for all the inevitable copy-cat proposals that others can think up. There are plenty of other deserving groups in need of an income stimulus and plenty of other lagging industries that could use a boost. A proposal like this, good as it might be when seen by itself, is an invitation to every special interest in the country to cook up a similar proposal and insist that it, too, have its day at the government trough.

My thought is, “Nice idea. I like it. But enough with the jokes. Can we now get serious about putting government expenditures on a sustainable path and can we begin to talk about the sacrifices that will have to be made to eliminate our outsized trade and budget deficits?”