Sunday, July 27, 2008

Cash for Clunkers?

This is an idea which goes back at least to the 1970's and has actually been implemented in France and several provinces of Canada. The government buys up vehicles which contribute to air pollution and recycles them for scrap metal and parts. The "Cash for Clunkers" plan is touted in today's New York Times as an "eco-friendly stimulus" by Alan S. Blinder, professor of economics and public affairs at Princeton University, former vice chairman of the Federal Reserve, and partner in Promontory Financial Group.

Professor Blinder's proposal has already sparked intense debate in blogs such as The Economist's View and Naked Capitalism.
As many comments on blogs are noting, the vehicles that would be scrapped in such a plan are not only the gas-guzzling "clunker" sedans and station wagons driven by the working poor in American cities. Late model sport utility vehicles leased or purchased on time are also polluting our air, and the cost of buying these back will make the plan far more costly here in the United States than has been the case where it has been implemented heretofore.

The objectives of the "Cash for Clunkers" plan are both environmental. and economic. In terms of improving air quality, I think that the program needs to be compared with alternative expenditures which might accomplish the same objectives.
For example, the same money might be more effectively spent on mass transit or on a rebate for upgrading to hybrid vehicles and fuel-efficient cars.

Viewed as an economic plan, it is not clear to me why any additional cash incentive is needed at this point. Justin Lahart reported over a month ago in the Wall Street Journal that American drivers were reaching the "point of no return" where they will begin purchasing smaller cars and cutting back on driving. In the style section of today's New York Times there is a piece by Mireya Navarro about carting off our "dream cars" along with the clunkers. We already have a working infrastructure for scrapping automobiles. Most poor people will scrap their clunkers if they have an alternative means of getting back and forth to work. With the price of scrap metal these days, I am not certain they need this incentive. Those who driving "dream cars" and dealers with excess inventory should also have all of the economic incentive they need to make the change.


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4 Comments:

At 7:21 AM , Anonymous Cath said...

"La prime à la casse" ou cash for clunker has also enabled our beautiful French countryside to get rid of horrible rusty wrecks here and there.

 
At 7:45 AM , Blogger Don Thieme said...

So good to have your comment, Cath, and to know about your own fascinating blog. I can only wish that the United States could go back 15 years or so in terms of the fleet of automobiles we were driving. Then it would make sense to pay too scrap the older vehicles. As it stands, people here are "downsizing" from the newer SUVs by picking up old "clunkers" on the used market.

 
At 11:21 PM , Blogger george.w said...

I think it's a great idea - and in addition to a high sale price, give the seller a 1-year bus pass.

It's an easy way to focus the stimulus on people in the lower income strata.

 
At 6:34 AM , Blogger Don Thieme said...

Alan Blinder was on CNBC yesterday afternoon talking this up there. Both Dr. Blinder and the interviewer cited a trend toward increasing fuel efficiency through time for an "average" personal automobile. I would like to see the evidence for that. I see relatively few cars on the roads these days which I would describe as "clunkers," and a lot of the older vehicles seem to be smaller and lighter than the newer ones. However, there probably have been major changes in the design of manifolds, exhaust systems, etc.... that make current vehicles "cleaner."

 

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