NCPA - National Center for Policy Analysis


July 29, 2008

"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 improving the environment and stimulating the economy, says Alan S. Blinder, a professor of economics and public affairs at Princeton University.

Here's an example of how a Cash for Clunkers program might work:

  • The government would post buying prices, perhaps set at a 20 percent premium over something like Kelley Blue Book prices, for cars and trucks above a certain age (say, 15 years) and below a certain maximum value (perhaps $5,000).
  • A special premium might even be offered for the worst gas guzzlers and the worst polluters; an income ceiling for sellers might also be imposed -- say, family income below $60,000 a year -- to make sure the money goes to lower-income households.

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, the cost would probably be about $8 billion.

Compared with other nationwide income-transfer or environmental policies, that's a pretty small bill.  For stimulus purposes, it would, of course, be better to run the program on a larger scale, if possible, says Blinder:

  • There are over 250 million cars and light trucks on American roads, and some 30 percent are 15 years old or older.
  • That's at least 75 million clunkers, so at five million cars a year -- an ambitious target, to be sure -- the program would cost less than $20 billion, still cheap compared with the $168 billion stimulus enacted in February.

Source: Alan S. Blinder, "A Modest Proposal: Eco-Friendly Stimulus," New York Times, July 27, 2008.

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