Cash For Clunkers, Continued

by Conor Clarke

My colleague Derek Thompson lays out some smart reasons why I'm wrong to call Cash for Clunkers a success. I have no quibble with one of those reasons (letting the government scrap the cars means destroying perfectly healthy capital) although that probably needs to be weighed against the environmental benefits of having fewer old cars on the road, since old cars produce the vast majority of transportation pollution. That, and it doesn't really speak to my point, which was that the speed of cash for clunkers is a testament to its success, regardless of what you think of the design.

And on the question of speed, Derek writes: "it's really quite likely that all we've done is spend $3 billion to make thousands of buyers to move their third/fourth quarter purchases into two weeks." To which I can respond: Congratulations, you have rediscovered the point of fiscal stimulus! We probably would not want to spend $3 billion such that Derek would buy tomorrow's bag of potato chips today. But the whole point of deficit-financed stimulus spending is really just that we spend money in the present, even if it comes at the expense of spending some money in the future (as a result of higher taxes or lower car purchases or whatever), and even if the spending in the present is not intrinsically useful. (The famous argument from Keynes was that we could just bury money in a mineshaft and hire people to dig it out, but that probably wouldn't go over politically.)