Editorial: Why I Hate Cash for Clunkers

Michael Martineck
by Michael Martineck

The CAR Allowance Rebate System—C.A.R.S—sounds like a ’70s Saturday morning cartoon about guys in striped jackets using trick vehicles to save the world. In fact, that would actually be preferable to the program currently airing, at cost of three billion and counting. Cash for Clunkers may be popular with a healthy segment of the population, but that group doesn’t include a lot of economists. In terms of economic policy, C4C would benefit from a little C4, if you know what I’m sayin’.

Warning. The following is not a right-wing diatribe. While there is very little in the public realm that can be cleansed of politics, attempting to look at the C.A.R.S plan unaligned does give one a different view. There are a few things about C4C that are not right. They’re not left, either. They’re wrong.

The most obvious case against the program is ideological: Keep government out of markets. Laissez-faire. Fair enough, except Uncle Sam sticks his fingers in many markets, frequently to the good of the nation. I like clean water, apples that don’t put me to sleep for 100 years and Amoxicillin that does what it reports to do (fix me up if the water or apples are bad). There are times when the federal government needs to intervene. Any point in the last 18 months can be considered one of those times. So, the laissez-faire agreement is weak.

My first real problem with C.A.R.S.: its effect on market timing. Putting a couple billion dollars on the barrel moves the market to act. The value added to older vehicles made some people move prematurely into the car market; people who might have considered dumping their POS before winter, or next spring. Extra sales made now will not be made later.

The announcement of the plan may very well have had a similar effect on potential customers in May and June. They waited for the C4C money to become available, putting their purchases off. The program creates an artificial buying season for no real reason. Other than to make this year’s data harder to use for predicting next year’s.

At the moment, there is no hard evidence that cash for clunkers increased the overall net business any car company was going to see this fiscal year. July numbers ticked upward, but that doesn’t mean sales came from customers who were otherwise out of the market.

Then there are the clunkers themselves. Once turned in the engines are filled with goo and run until useless. The destruction of a useable asset is waste. While some of the natural resources that went into that car can be reclaimed, the labor hours extinguish. It makes perfect sense for someone to turn in their Ford Explorer worth three large and take the Fed’s $4,500. The $3,000 in value the vehicle had is lost. The economy as a whole suffers.

Getting less fuel-efficient engines off the road has an environmental benefit. There’s also a huge environmental benefit in driving old cars into the ground. It takes a lot of fossil fuels to build cars in the first place, from the mining of the ore to assembly to shipping. Fouling the engine means these hulks need to shipped and processed again, using more energy. To the economy, waste is waste.

In terms of stimulus, three billion wouldn’t do a hell of a lot were it injected directly into people’s bank accounts. Current dollar gross domestic product last quarter was $14,149.8 billion, making C4C kind of a drop in the hot tub.

There is value in the perception that C4C generates. It is an understandable, and to many useful, stimulus package regardless of the final numbers. Its utility has been amplified by car dealers across the country. The recent meme that the program had run dry stoked the message even more.

In the end, though, C.A.R.S has interfered with a market finding a new equilibrium, one in which American’s buy 10 or 15 percent fewer vehicles per year. That’s actually better for the environment than the amount of hybrids sold in the next ten years. It can be painful to adjust to such market contractions, but that’s where government programs really do come in handy. Combating market forces is rarely the best use of public funds. If people want fewer cars, or want to get more life out of the ones they’ve already got, its tough to say that’s bad for America.

Fostering the growth of new markets—like renewable energy sources—and retraining a work force to fill needs in those new markets are constructive uses of tax dollars. They add to the GDP in a way junking a ’98 F-150 never will. This ain’t Saturday morning. C.A.R.S are not going to save the world.

Michael Martineck
Michael Martineck

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  • U mad scientist U mad scientist on Aug 13, 2009
    Clearly, just calling an institution a bank does not mean the economy of wherever this institution is located suddenly becomes a modern economy No it doesn't. But it doesn't really matter because you clearly don't know how modern banking works and have absolutely no desire to learn. Just reading the basic wiki entry on the fed reserve system would enlighten you, but that's not going to happen because obviously access to knowledge is not the problem. -- That if I have $1000 tomorrow, I am in a position to demand more than if I have $0? This is not microecon, you should learn the difference. Seriously. I even explained it above. In this case, that $1000 used today is going to sustain productivity (and salaries of others) such that there will be more tomorrow. The problem I think is some people have trouble with systematic effects. Everyone holding onto their $1000 means everyone starves as that pile dwindles. In fact, have and using money today instead of tomorrow is so important that we created banks to aid this. -- So, believing supply and demand to be basic concepts of economics is an indication of faith in ignorance based theory? Supply and demand is the really basic stuff taught in the first chapter of econ. Like many areas of study, people have found the real world is more complex. Again, this is hardly secret or controversial. The only people who are confused are those who lack the will to learn anything. It's about the equivalent of someone has trouble with arithmetic, hates math, and can't begin to grasp why computers compute 1 + 1 = 10. They insist it's written like 2 and no one can tell them otherwise! Where do you begin with idiocy like that? Symbolic representation vs. value? -- Hence, logically, without accounting magic, productivity could not be sustained. As has been aptly proven over and over again with primitive banking. Again, this is not some secret. It's well known information. -- So, admonishing people to look at all sides of an issue is the hallmark of science deniers where you’re from? Their strategy is to raise credibility for viewpoints that have none. Backward people who are willfully ignorant should be mocked so everyone can aware of their drag on human knowledge and progress. --- As long as you recognize the outside agenda of the peanut gallery “analysts” never ceases to be that of justifying why they in particular, as opposed to all others, are so “important” to “the system” that they should be uniquely allowed to take stuff from everybody else, and pay it to themselves as bonuses or pensions. No one is defending the compensation, it's clearly somewhat corrupt in that regard. But that's hardly the issue at hand. --- Which is why we have close to 10% and rising U3 unemployment, and record low numbers for workforce participation, as well as at least one generation of people with hardly any savings at all going into what they were once led to believe was retirement age. The system became somewhat broken due to systematic fraud of specific sectors. Just because there's miscarriage of justice doesn't mean the basis of a legal system is unfounded. You seem to be just angry about banks as they are, which I guess is fair, but that's a rather different matter than how the economics works.
  • U mad scientist U mad scientist on Aug 13, 2009
    That’s what I don’t understand, and why I’m so ignorant as to not realize my only hope is to let my children go into debt slavery to support bonus payouts at Goldman Sachs! You should've been paying attention when the corporatist movement was afoot to deregulate finance year back. What many lay peeps don't realize is that there is no good solution once you start deflating. There is only the least worst solution. The only real answer is avoid that position in the first place which was why the finance regs and watchdogs were created. Sadly and ironically the morons blaming the gov now were the very ones cheering on what led to loosening or dropping of the ground rules and the subsequent catastrophe. In other words, these are the same morons who thought government oversight of banks was what's unnecessarily dragging down their potential profits. Smart people tried to warn them, but they're not called morons for nothing.