Cash For Clunkers

Included in the supplemental war funding bill passed by the House yesterday was a measure providing $1 billion in funding to a program called "Cash for Clunkers," which essentially works like this: the government will offer vouchers of up to $4,500 for car owners to turn in their inefficient vehicles for a new model which improves on that fuel efficiency. Ultimately, the program would spend up to $4 billion to get 1 million "clunkers" off the road.

There's actually been a lot of criticism from environmental advocates over the program, but it seems to me that its primary goal is to induce $10-$15 billion dollars of economic activity. The government offers $4,500 or so to leverage $15,000 or more of spending per car, and that goes to dealers, suppliers and manufacturers. The environmental impact is a secondary characteristic of what amounts to a micro-stimulus. Now, there have been some very compelling articles about how this particular program doesn't go far enough - although I would add that getting vehicles that offer 18mpg or less off the road and putting those people into any kind of car that gets half-decent, even below-average mileage saves a LOT more gas than putting people from a Honda Civic into an electric car. That's just a mathematical fact. So while it seems like nothing switching from a car that gets 18mpg to 22mpg, as the program incentivizes, you save more gas that way than switching from 50mpg to 100mpg. You can see if your car qualifies for the program here.

But again, the primary goal of this program appears to be getting $15 billion dollars cycled through the economy. Hiding that money in holes and allowing people to dig the money up is similarly wasteful, inefficient and inequitable - but it would be precisely what John Maynard Keynes would proscribe. Auto spending is the largest purchase that non-wealthy consumers make outside of housing, and incentivizing that activity would have a stimulative effect. Plus, considering that we own a lot of GM and Chrysler, this would in effect allow the government to pay itself.

Again, the details of this particular cash for clunkers plan may not be ideal. But putting it into the stimulus tells me two things. One, the Administration knows that we need economic stimulus. The economy continues to fall apart, with double-digit unemployment just around the corner, and even a leaky stimulus measure makes a lot of sense right now. If it reduces emissions - and nobody questions that it does, just not enough - that's gravy. The White House probably sees the prospect of a big stimulus unlikely in the short term, and so sneaking this cash for clunkers measure into the war spending bill at least leverages a nice piece into the economy.

Two, I think this means Waxman-Markey, the climate and energy bill, is in a lot of trouble. Despite the fact that it would actually reduce the deficit, the concerns about cost have caught fire on the right, mainly through persistent lies. The bill had to be seriously gutted to get passage out of the Energy and Commerce Committee, leading many on the left to slam it, sometimes in misleading ways, as David Roberts notes (Waxman-Markey does NOT give away 85% of carbon allowances to polluters). But cash for clunkers initially made its way into Waxman-Markey. That the Administration took it out and sped it up does not speak well for their beliefs about its passage in the short term. Maybe they just want to kickstart the auto industry faster, but it seems to me there's a lot more talk about things like painting everybody's roof white than passing a comprehensive climate and energy bill. And that's a big worry.

...so I'm providing the concerns with this iteration of the bill, the trigger point for vouchers can be as lot as 1mpg; there is a sense that poor people who need a car wouldn't be able to get one with such a voucher and should be able to step up with used cars (in other words, buy a used vehicle with better mileage than their current vehicle, kind of a clunkers-for-super-clunkers); and Japanese automakers would have a better time of things with this bill than American ones.