Cash for Clunkers Reduces Emissions — For Free!

But 4 out of the 5 models beneficiaries are buying are foreign… see link in my rant: http://www.beaupre.com/cleanspeak/

It's true, but many of these are manufactured in the United States, and the dealers stateside certainly benefit. Perhaps a better argument against the stimulative elements of the program is that people who are trading in would have bought new cars soon anyway, and cash for clunkers is simply cramming those purchases into a one-week (or one-month) period — at taxpayer expense. Still, for the time being, it's pretty clear that the program is a boon to the U.S. auto economy.

To an economist, the obvious question is: if it saves so much, why wouldn't consumers buy the new cars even without the program? I mean, if it pays for itself when the money comes from the government, it will also pay for itself when the money comes from consumers, who could presumably subsidize themselves with the money they will save on gasoline.

I'm not sure what the answer is. Perhaps the problem is that consumers don't have enough savings and can't borrow the money at a low enough interest rate to make the new purchase cost-effective for them without the subsidy. (The government, by contrast, is borrowing at near-zero interest rates — actually negative in real terms — for short time horizons right now, so as long as the program pays for itself quickly enough, it's a good deal “for the nation as a whole” though maybe not for those taxpayers without clunkers to sell.) Another possibility is that consumers just need that extra push to get off their ass and buy a new car, perhaps because they wouldn't have done the calculations and realized that they come out ahead.

But even if the program didn't pay for itself, it would still be a net benefit — even ignoring any enviornmental benefit — because the cars will be produced by workers who otherwise would have been unemployed, and most of them probably don't have very good alternative uses for their time. (I would say that, whatever value there is in those alternative uses, is probably outweighed by the psychological cost of being unemployed.) In Keynesian economics, an effective stimulus pays for itself immediately because the cost is only in terms of resources that would otherwise be wasted. In fact, it more than pays for itself, because the indirect effects create additional demand for resources that would have been wasted.

So I'm wondering: if this program is such an effective stimulus, why don't we do similar things for other durable goods? I'll tell you, if the government had a cash-for-clunker-refrigerators program, I would definitely replace the dilapidated one I have instead of putting it off repeatedly and having to continue wiping out the water that collects every few days. It's the same principle as the Investment Tax Credit, but applied to consumers instead of businesses: if the government subsidizes them, you'll buy your durable goods now, when the economy needs it, rather than waiting a few years until it may not.

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Its these win-win situations that really burn the GOP and the right-the majority of car dealers are Republicans. If they had the courage of their convictions they would reject that stimulus money, right? After all, the government doesn't make jobs, subsidies are slavery, blah blah blah Ayn Rand's left teat Cato Kaelin institute mlah. I guess the money talks louder than all of those right wing poseurs.

Both trucks are car qualify for the Cash For Clunkers but not the motorcycles.

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