Ampersand writes: “This is very basic economics. As prices drop, demand increases, leading to increased sales. That in turn leads manufacturers to produce more cars (supply goes up), which will get them to hire more workers, or at least slow down layoffs.”
Well, prices didn’t really drop — the buyer paid less and the taxpayers are making up the difference. When the C4C program stops, prices will remain the same. Plus the value of the clunkers is lost in the process — plus you have to add in the cost of destroying them and dealing with their disposal. Auto makers are not likely to hire new workers based on a temporary government program, and will likely lay off more workers when the C4C program stops and car buying hits a slump after the frenzy.
The buyers who traded in cars which were paid off now have a payment, which means they have less monthly disposable income to buy other goods.
There will be many less used cars, so used car dealers will be hurt, plus poor people will have less inventory which they can afford. Then, soon, taxes will go up to pay for the increased government debt, which will trickle down to the price increases we all have to pay, including the poor.
This program will temporarily help the auto industry, but the net effect might be negative for the economy.
The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.
Let’s keep this in mind when praising or criticizing the program, yes?
If we do this, then Welch’s criticism is beside the point. The program was not meant to redistribute wealth, or provide frowning families a down payment on a newer car. The goal was to improve mean and gross fuel efficiency by collapsing the area beneath the “-3σ to -2σ” section of the distribution curve.
You can also improve the mean and gross of human height by killing midgets and North Koreans, which, by the way, is definitely a job government would excel at.
To some extent, Matt Welsh’s criticism resonates with me. I, too, own an old— in my case, it’s a ’90, nearly classic!— Japanese automobile that gets good gas mileage. So, the program bypasses me, perhaps arbitrarily.
Why not, instead, extend the incentive to an owner of a car that get 30 mpg, as long as the owner trades up to a vehicle that gets 35 or even 40 mpg? In that case, don’t junk the older vehicle. It still gets good gas mileage and presumably, it would make a very affordable used vehicle. So, allow the dealership to resell or scrap the old car, that way addressing some of the concerns about how the very low end used car market is affected.
Where I don’t quite follow Welsh, though, is his gripe about the uneven benefit of the program. Granted, I realize he is disputing Sullivan’s claim that “everyone” benefits, but Welsh overcompensates, suggesting that Cash-For-Clunkers’ big sin is that it disproportionately rewards a segment of the middle class. Even if that’s true, isn’t that the nature of most, if not all, tax incentive programs— that they target certain tax payers? If Cash-For-Clunkers were available to all, regardless of a car’s age and mileage, it would simply be Cash-For-Cars.
If the ecological benefit is indeed dubious, that’s an obvious strike against the program. Welsh, however, doesn’t dwell on that aspect. He’s fired up about the program’s exclusionary, unjust nature. Yet, how many government programs are or can be expected to be thoroughly inclusive?
Perhaps a side benefit to Clunkers is that it substitutes a portion of bigger, heavier vehicles with smaller, lighter cars, thus giving a person like me, driving a tiny old import, better odds in a traffic accident. Also, might this liberal administration be making yet another cagey play: how better to take the wind out of the next conservative “Drill here, drill now!” chorus than to move as many drivers as possible out of vehicles that give the chorus urgency?
“Going from 30 to 35 mpg is not a substantial improvement. Going from 15 to 20 is.”
If that’s the case, adjust the tax incentive accordingly. The owner trading from 30 mpg up to 35 mpg gets less cash than one trading from 15 up to 20. You still generate demand and, presumably, stimulus to the economy, and the program opens up to a larger segment of tax payers.
You mean the government is offering people free money . . . and they’re taking it? And they’re measuring the program’s success by how many people . . . are willing to take free money? Shocker that it’s been so succesfull, huh?
Clever, but not on point. Success or failure is can only be measured against the stated objectives. Which are, again:
… to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.
Balko’s second criticism is valid. To determine whether the program is good, benefits are measured against cost.
However, unlike Balko, I don’t find it obviously absurd that CARS’s benefits outweigh the costs. And his formula is out-of-whack:
(all of the energy that went into making the old car) + (the energy it will take to destroy it) + (all of the energy it took to make the new car) + ($3,500) < an extra four miles per gallon!
The energy to make the old car belongs on both sides of the equation; car destruction already exists; it’s an industry operating at economies of scale; the proper measure is the marginal increase in energy to destroy the cars; this marginal increase will happen exactly once; it’s not obvious how or if total manufacturing will be responsive to the sudden uptick in purchases; the energy to make the new car has already been spent; $3500 is a one-time cost; an extra 4mpg is a recurring benefit; emergent benefits are possible during ascension; benefits do not follow a single linear function as you go from 1 trade-in to 1 million.
Mike Farmer: The buyers who traded in cars which were paid off now have a payment, which means they have less monthly disposable income to buy other goods.
True, but getting consumers to finance durable goods is a net positive for the economy. This is particular true for the big car companies, who are less in the business of selling cars, and more in the business of providing loans for the people who buy them.
“The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.
Let’s keep this in mind when praising or criticizing the program, yes?”
Yes, but it needs to be analyzed short-term, long-term and in relation to unintended consequences. Otherwise it would be the old studying bottled river water taken from the river, it doesn’t tell you much about the water in its natural state.
The owner trading from 30 mpg up to 35 mpg gets less cash than one trading from 15 up to 20.
He does get less. Specifically, he gets zero. Look, frankly the program as it is isn’t anywhere as good as it was going to be. CARS as it was finally passed is as weak as it is because concessions were made to conservatives, who worried that the program would be an expensive boondoggle.
Of course, none of that seems to have stopped conservatives from faulting the program for the same precise weaknesses they introduced in Congress. Funny how that works!
Kris, I’m with Mike. You’re too smart to say that “Success or failure is can only be measured against the stated objectives.”
Why should I prioritize Obama’s objectives over the ones that he doesn’t state?
IMHO, success or failure should be judged by totalling all the likely outcomes, weighting them by probability, and comparing the outcome to the likely outcome of alternatives.
In this case, on the bad side, we are borrowing $3 billion from the Chinese in order to destroy an additional $2 billion or so in American wealth. We are transferring wealth from future taxpayers to current new car buyers, and we are punishing the poor by removing inexpensive working automobiles from the market. On the good side, we are stimulating a certain amount of demand and we are increasing the overall mpg of the American fleet somewhat.
AFAICT, those are the outcomes. People may differ about whether the good outweighs the bad, but IMHO, it is unreasonable to limit the area of inquiry to only those things Obama would like us to talk about.
We are transferring wealth from future taxpayers to current new car buyers, and we are punishing the poor by removing inexpensive working automobiles from the market.
This is just stupid. There’s no shortage of cheap clunkers. Go to any used car lot. There’s far in excess of demand, clearly. The idea that some poor person is languishing at home, pining for the lost opportunity to purchase my 98’ Bravada with 140k miles (that I’m certain is about to require double its value in repairs just to stay running) is absolutely fucking stupid. It’s a conservative talking point, not a legitimate concern.
“This is just stupid. There’s no shortage of cheap clunkers. Go to any used car lot. There’s far in excess of demand, clearly. The idea that some poor person is languishing at home, pining for the lost opportunity to purchase my 98’ Bravada with 140k miles (that I’m certain is about to require double its value in repairs just to stay running) is absolutely fucking stupid. It’s a conservative talking point, not a legitimate concern.”
You might be right about this point, although we don’t know how many more clunkers are going to be destroyed, and it does limit the supply — whether it will limit the supply enough to matter is yet to be seen — but the other points are more salient to a criticism of the program.
This is just stupid. There’s no shortage of cheap clunkers. Go to any used car lot. There’s far in excess of demand, clearly.
I have no idea how to respond to this, except to note that Chet is anti-science. I like you, Chet, but you are so far removed from the reality-based community that I don’t have any idea how to bring you back. I apologize for that.
A quick thought experiment:
1 Is there orange juice on the shelves of your local grocery?
2 If yes to #1, does that cause you to conclude that “supply is in excess of demand, clearly?”
3 If yes to #2, if a drought in Florida reduced the supply of orange juice, would you expect that the price of orange juice would, all else being equal: go up, go down, or stay the same?
I have no idea how to respond to this, except to note that Chet is anti-science
Your example couldn’t be more flawed. Used cars aren’t orange juice. If you want to compare used cars to used orange juice, on the other hand… More seriously, it’s absurd to pretend that all used cars are in the same used-car market. That’s not true of new cars – people who buy trucks and who buy subcompacts are in two different markets, and an excess of trucks doesn’t make a Ford Fiesta any cheaper – so it certainly wouldn’t be true of used cars. A minor decrease in the supply of used, inefficient, barely-running clunkers that immediately need double their value in repairs doesn’t make a used car any more expensive than it already is.
The status of economics as a science is already dubious, but you don’t do it any favors when you apply such a simplistic analysis. A minor decline in the supply of cars nobody wants isn’t going to make a used car any more expensive for anybody else. These are clunkers, remember? If they have basically any resale value at all, they’re already ineligible.
JMann, agree: it’s important for the opposition to question the ruling party’s priorities, and not just the means. My point, which could have been fleshed out a bit, was that Balko conflates the underlying mechanism on which the program relies — people will always take free money — with the reason for the program itself, that is, to improve mean and gross fuel efficiency.
Democrats (I’m not one) argue that according to internal logic of Cash for Clunkers:
high popularity = lots of trade-ins = objectively higher fuel efficiency = success.
My point is that the equation is inarguable, when you first concede arguendo that CARS was a good idea. Rather than ridiculing the Dems for trumpeting the former, which is a absolutely valid point, Balko should have stayed focus on the latter, that is, on not conceding that CARS was good idea.