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Saturday, July 26, 2008

Cash for Clunkers

What do you think about this proposal?:

A Modest Proposal: Eco-Friendly Stimulus, by Alan S. Blinder, Economic View, NY Times: Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Here’s my humble suggestion: “Cash for Clunkers,” the best stimulus idea you’ve never heard of.

Cash for Clunkers is a generic name for a variety of programs under which the government buys up some of the oldest, most polluting vehicles and scraps them. If done successfully, it holds the promise of performing a remarkable public policy trifecta — stimulating the economy, improving the environment and reducing income inequality all at the same time. Here’s how.

A CLEANER ENVIRONMENT ... A California study estimated that cars 13 years old and older accounted for 25 percent of the miles driven but 75 percent of all pollution from cars. ...

MORE EQUAL INCOME DISTRIBUTION ...Most [clunkers] are owned ... by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.

AN EFFECTIVE ECONOMIC STIMULUS With ... the economy weakening, Cash for Clunkers would be a timely stimulus in 2009. ... And the quickest, surest way to get more consumer spending is to put more cash into the hands of people who live hand-to-mouth. ...

People who sell their clunkers would ... be free to spend this money as they see fit, whether on a new car or truck or some other form of transportation — or anything else. ...

Cash for Clunkers is not the pipe dream of some academic scribblers. Local variants are either now in operation or have been tested in California, Colorado, Delaware, Illinois, Texas, Virginia and several Canadian provinces. So there is no need for a “proof of concept.”...

The big need to date has been money, which is why the scope of Cash for Clunkers programs has been limited. And that, of course, is where the need for stimulus comes in. We now want intelligent ways for the federal government to spend money.

Here’s a high-end cost calculation for a national program. Suppose we took two million cars off the road a year, at an average purchase price of $3,500... Including all the administrative costs of running the program, that would probably cost about $8 billion. ... For stimulus purposes, it would, of course, be better to run the program on a larger scale, if possible. There are over 250 million cars and light trucks on American roads, and ... at least 75 million clunkers. At five million cars a year — an ambitious target, to be sure — the program would cost less than $20 billion,... cheap compared with the $168 billion stimulus enacted in February.

And what would all this money buy? First, less pollution. ... Second, the ... direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive — not just the subsidy, but the entire payment, giving the economy a much-needed boost.

Oh, and I left out a fourth possible goal. By pulling millions of old cars off the road, Cash for Clunkers would stimulate the demand for new cars as people trade up. It need hardly be pointed out that our ailing auto industry, like our ailing economy, could use a shot in the arm right now. Scrapping two million or more clunkers a year should help. ... Cash for Clunkers is an idea whose time may finally have come. Write your congressman.

    Posted by on Saturday, July 26, 2008 at 05:49 PM in Economics, Environment, Policy | Permalink  TrackBack (1)  Comments (58)


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