As Republican senators rush to kill Obama's wildly popular Cash for Clunkers, which gives new car buyers up to $4500 for their old cars, it's time to think seriously about whether we should spend another $2 billion on this giveaway. I wrote a fair amount about this program last week including an FAQ and an update, but now I'm pretty sure that Cash for Clunkers is a bad policy that doesn't deserve a $2 billion double-down.
Cash for Clunkers should be clunked because it's bad for the
environment and bad for the tax payer, and because we're paying people
to trade up cars that they were going to replace anyway.
Bad for the Environment
program is designed to help the ailing car industry and the environment
by rewarding consumers who want to trade up for an environmentally
friendly car. But C4C is much easier on SUV buyers than car buyers. Let's say
want to trade up for either a car or an SUV, both with a 2 MPG
improvement. The SUV will qualify for a $3500 rebate. The car won't. So
we're still paying people to choose SUVs with worse mileage than cars,
even after Detroit's implosion. What's worse, Michigan lawmakers are trying
make it even easier for buyers to trade up for SUVs with the next $2
billion batch. Subsidies distort the market, but a subsidy designed to
crystallize Detroit's backward SUV-centric default is a stupid
investment in the environment, and a terrible investment in the
long-term sustainability of General Motors and Ford.
Bad for the Tax Payer
for Clunkers was designed to last until October. Instead the program
ran out of money in less than a week. That's good news for the auto
industry, because it confirms what many analysts long suspected: That
the pent-up market for cars
historic and primed to go gangbusters. But in all likelihood, these
sales were going to happen anyway -- the current age of our auto fleet
is at an all-time high. If we should be paying people to trade in cars
that they are going to replace in a few months anyway, then the
argument for Cash for Clunkers is essentially an argument for
government giveaways for any consumer activity. The CEO of Edmunds.com,
a new and used car sales website, says
he's not convinced Cash for Clunkers will increase yearly sales in any noticeable way.
officials have called C4C the most effective stimulus program they
could have dreamed up. But the point of public stimulus spending is to
replace demand that does not exist, not to spend billions of dollars to
take three months worth of sales and cram them into a frenzied week.
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is a staff writer at The Atlantic,
where he writes about economics, labor markets, and the media. He is the author of Hit Makers