Will 'Cash for Clunkers' Help the Economy?
Debate rages over whether the program is helping the economy and the environment
The Senate may have passed a bill to save "cash for clunkers" last week, but experts are still debating whether the program clicks or clunks. The administration argues that it has been a wild success. That's partly right. The program, which provides rebates to consumers swapping out old cars for more efficient vehicles, proved so popular that its budget of $1 billion ran out less than a week after launching. With dealers reporting crammed floors and late-night crowds for the first time in months and auto companies seeing surges in sales, it's little surprise that Congress added $2 billion to the program's coffers.
But not all economists and environmentalists are as enthusiastic. When it comes to the program's twin goals of stimulating the economy and reducing emissions, the results, many say, are mixed.
Few would argue that the program didn't get Americans buying cars. In July, 997,824 new cars were purchased, 16 percent more than were bought in June. Since the program was launched in the last week of July, sales are expected to be even stronger in August. So far, more than 315,000 vehicles have been traded in through the program. But many economists question the wastefulness of subsidizing the destruction of a functioning product, since "clunkers" traded in go to the scrap yard. And how many buyers would have come in on their own a few months later, at no cost to the government, is unknown.
Still, others point out that even if the program changes only the timing of purchases, that's not bad. "Part of what we're trying to do is get the economy going today," says John Irons, research and policy director of the progressive Economic Policy Institute. "If you can accelerate car purchases by a year or two years, you're moving economic activity from the future, when the economy may be recovered, to now, when you need jobs."
If the economic impact isn't clear-cut, neither is the environmental effect. On the plus side, experts point out that any increase in fuel efficiency (even the small change from 18 mpg to 22 mpg, which would yield a $3,500 rebate) is an improvement. Still, many see missed "green" opportunities, like the fact that a new vehicle that gets just 22 mpg—a fuel economy closer to a Hummer than a hybrid—can qualify for a rebate. Critics also point out that destroying a car and manufacturing a new one to replace it causes emissions.
That leads to a central conundrum of cash for clunkers, says Ted Gayer, incoming director of the Brookings Institution's economic studies program. If consumers would get rid of their clunkers anyway, then the program doesn't actually stimulate the economy; but by encouraging them to trade their vehicles for something more fuel efficient, it helps the environment. If they weren't going to trade their cars in but now do, the program helps the economy but undercuts the environmental benefits by stimulating destruction and manufacturing. "There are competing ends going on here," Gayer says.
While the reviews of cash for clunkers may be mixed, one thing is clear: It has gotten consumers excited about buying again. And for Detroit, that's a slam-dunk.
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Reader Comments
Cash for Clunkers creating more debt?
Did we really want to trade an aditional 4 miles per gallon, for around 820,000,000(thats million)lbs of scrap metal and close to an estimated 4.6 billion in consumer debt along with the 3 billion+ in tax dollars to fund the program? Not to mention the average "clunk" driver owns their automobile and pays less for their insurance and registration. Which means more money for consumer purchases. Of course, if the money is not the issue for those who have their new body transport was it really in our general interest or was it another extension of the BAIL OUT to boost sales for struggling car dealerships? Sales may be up, but its like upping the limit of a maxed out credit card with the requirement to exchange our recycled plastic for some world saving advanced composite materials that makes up that magical card we love so much. Granted the idea is right, the programs "vehicle" is all wrong! This all might make sense to some, but not to me.
Success judged by speed of spending?
I can't remember the term economists use to describe trade offs considered by decision makers when selecting among scarce resources, but I think we need to add it back to our vocabulary and thinking because words like "billions of dollars" (and soon trillions) are beginning to lose their meaning. Our debates and discussions (maybe even political decision-making) might become more meaningful if expenditures, like the $3 billion cash for clunkers program, were described in terms of how the money might have otherwise been spent. For example, how much needed health care would the clunker cash have purchased? How many health-care related jobs might it have funded? How much flu vaccine? You get the point. One thing for sure, judging the success of a program by the speed of spending under the program is beyond asinine.
Economics
The Fees of Pa wrote: "I have had enough about trickle down economics. When you supply money on the demand side of the equation, the economics roars up instead."
Trickle up or tricle down makes no difference. The money ends up in hands of big business. Why? Because they own the factors of production. They are in the business to make money. They understand that it costs money to make money. They employ people like you and I.
The fee of PA wrote: "If they took that money and gave it out to all Americans to buy more fuel efficient cars, we would be free from our dependence right now."
First off, the money, you talk about, was yours to begin with.
Be free from whom? Your dependent on the government for the hand-out. That means you are not free if you depend on someone to do something.
Free from foreign dependence on oil? This nation does not currently have the capacity and ability to provide fuel for this nation--even if every car was fuel efficient. Yet other nations don't seem to have a problem drilling in our own back yard. Democrates can't have their cake and eat it too. Do you want freedom? Then get Uncle Sam's hand out of your pocket and start drilling for your precious oil. Oh, but it cost money and you don't have the kinda of money. Exactly, that's why trickle up economics is a joke and doesn't create jobs.
You believe that trickle up makes an economy come roaring back. Seems to me, Bush was railroaded into doing just that by a bunch of Democrates. Didn't see any "roaring" economy come to life.
Lastly, you grouse about the millions spent to fight terrorism. There are many in America that believe it was wrong. They're entitled to an opinion. But at what point would you or other's have advocated war? Would it have taken another 9/11 since the first was enough reason. If not now, then when?
I, for one, am glad that my tax dollars are spent to kill terrorists in the Middle East. I'm thankful that we had a President with the cajones to take a stand and beat the living snot out of terrorist and countries that harbor terrorist. The truth be told, this fight should have happened when Clinton was in office. He had reason and motive--1993 WTC bombing, 1995 bombing in Saudia Arabia, 1996 Khobar Towers, 1998 bombing of US Embassies in Africa, 2000 bombing of the USS Cole. All told 287 dead, 8000 wounded and countless American lives forever effected. Does any of that ring a bell? Does your memory erode so quickly? What was Democrate Clinton's response . . .?
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