CLUNKERS IN PRACTICE
October 7, 2009
Cash for clunkers had two objectives: help the environment by increasing fuel efficiency and boost car sales to help Detroit and the economy. It achieved neither, says the Wall Street Journal.
Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25 percent from a year earlier:
- Sales at GM and Chrysler fell by 45 percent and 42 percent, respectively; meanwhile, Ford was down about 5 percent.
- Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway.
All the program seems to have done is steal those sales from the future, exactly as critics predicted.
With regards to the environment:
- At best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use, according to Hudson Institute economist Irwin Stelzer.
- Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers; they found a net cost of roughly $2,000 per vehicle.
- Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.
The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work, says the Journal. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.
Source: Editorial, "Clunkers in Practice," The Wall Street Journal, October 5, 2009.
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