Politicians are touting cash for clunkers as a successful program that has killed two birds with one stone. By handing out taxpayer money to subsidize a portion of the cost of a more fuel efficient vehicle, the program is saving the economy and saving the environment.
Although the program increased consumer spending and increased fuel efficiency, the question should be: At what cost? It has been a bureaucratic nightmare laden with unintended consequences. And despite all its ‘success’, GM and Chrysler’s sales in August from a year earlier fell 20 and 15 percent, respectively.
Sure, the government was successful as spending $3 billion in taxpayer dollars, but when isn’t the government good at spending other peoples’ money? Unfortunately, the government hasn’t been so great at transferring the money affecting the cash flows of some of the dealerships. A few examples:
One owner quipped, “I have not gotten one dollar in reimbursement. I have $300,000 or more dollars out there that Uncle Sam owes us. If they screwed up this program so badly, I wonder what our health care system will be like.”
Lou Tornabeni of Ettleson Hyundai said, “Out of 142 deals they owe us for, we’ve gotten paid on seven.”
And Carm Scarpace of Westfield Ford remarked, “We had 102 cash for clunkers. We’ve been paid for one.”
Then there’s the alleged environmental benefit. California-Berkley economist Christopher Knittel estimated the costs of the reducing carbon dioxide from cash for clunkers. Mercatus scholar Bruce Yandle summarizes the methodology and the findings:
“Knittel made plausible assumptions about the average life remaining in vehicles removed from the road, the average fuel economy associated with those vehicles, and the resulting levels of carbon emission that would have survived in the absence of clunkers. Eventually, of course, the clunkers would have died a natural but less dramatic death. Knittel then estimated the carbon reduction gained when the large fleet of clunkers was replaced by a new fuel-efficient fleet.
When he ran the numbers, Knittel found the cost per ton of carbon reduced could reach $500 under a set of normal values for critical variables. The cost estimate was $237 per ton under best case conditions. And what does this tell us? The much celebrated Waxman-Markey cap-and-trade carbon-emission control legislation estimates the cost of reducing a ton of carbon to be $28 when done across U.S. industries. Yes, we are getting carbon-emission reductions by way of clunker reduction, but we are paying a pretty penny for it.”
Furthermore, we shouldn’t forget how profoundly wasteful this program is. Yandle goes on to say:
Frédéric Bastiat’s brilliant parable of the broken window reminds us that a street hoodlum throwing a brick through a window generates a series of job-generating transactions that might raise GDP by a trivial amount, if it could be measured. Indeed, the idea seems so compelling that people today often speak of the silver lining found in the clouds that create hurricanes. Think of the roofers that become employed. But Bastiat’s key lesson is that a window has been destroyed—and it had value. Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”
Instead of killing two birds with one stone, cash for clunkers simply has killed hundreds of thousands of engines for no real good reason.