The CAR Allowance Rebate System-C.A.R.S-sounds like a '70s Saturday morning cartoon about guys in striped jackets using trick vehicles to save the world. In fact, that would actually be preferable to the program currently airing, at cost of three billion and counting. Cash for Clunkers may be popular with a healthy segment of the population, but that group doesn't include a lot of economists. In terms of economic policy, C4C would benefit from a little C4, if you know what I'm sayin'.
Warning. The following is not a right-wing diatribe. While there is very little in the public realm that can be cleansed of politics, attempting to look at the C.A.R.S plan unaligned does give one a different view. There are a few things about C4C that are not right. They're not left, either. They're wrong.
The most obvious case against the program is ideological: Keep government out of markets. Laissez-faire. Fair enough, except Uncle Sam sticks his fingers in many markets, frequently to the good of the nation. I like clean water, apples that don't put me to sleep for 100 years and Amoxicillin that does what it reports to do (fix me up if the water or apples are bad). There are times when the federal government needs to intervene. Any point in the last 18 months can be considered one of those times. So, the laissez-faire agreement is weak.
My first real problem with C.A.R.S.: its effect on market timing. Putting a couple billion dollars on the barrel moves the market to act. The value added to older vehicles made some people move prematurely into the car market; people who might have considered dumping their POS before winter, or next spring. Extra sales made now will not be made later.
The announcement of the plan may very well have had a similar effect on potential customers in May and June. They waited for the C4C money to become available, putting their purchases off. The program creates an artificial buying season for no real reason. Other than to make this year's data harder to use for predicting next year's.
At the moment, there is no hard evidence that cash for clunkers increased the overall net business any car company was going to see this fiscal year. July numbers ticked upward, but that doesn't mean sales came from customers who were otherwise out of the market.
Then there are the clunkers themselves. Once turned in the engines are filled with goo and run until useless. The destruction of a useable asset is waste. While some of the natural resources that went into that car can be reclaimed, the labor hours extinguish. It makes perfect sense for someone to turn in their Ford Explorer worth three large and take the Fed's $4,500. The $3,000 in value the vehicle had is lost. The economy as a whole suffers.
Getting less fuel-efficient engines off the road has an environmental benefit. There's also a huge environmental benefit in driving old cars into the ground. It takes a lot of fossil fuels to build cars in the first place, from the mining of the ore to assembly to shipping. Fouling the engine means these hulks need to shipped and processed again, using more energy. To the economy, waste is waste.
In terms of stimulus, three billion wouldn't do a hell of a lot were it injected directly into people's bank accounts. Current dollar gross domestic product last quarter was $14,149.8 billion, making C4C kind of a drop in the hot tub.
There is value in the perception that C4C generates. It is an understandable, and to many useful, stimulus package regardless of the final numbers. Its utility has been amplified by car dealers across the country. The recent meme that the program had run dry stoked the message even more.
In the end, though, C.A.R.S has interfered with a market finding a new equilibrium, one in which American's buy 10 or 15 percent fewer vehicles per year. That's actually better for the environment than the amount of hybrids sold in the next ten years. It can be painful to adjust to such market contractions, but that's where government programs really do come in handy. Combating market forces is rarely the best use of public funds. If people want fewer cars, or want to get more life out of the ones they've already got, its tough to say that's bad for America.
Fostering the growth of new markets-like renewable energy sources-and retraining a work force to fill needs in those new markets are constructive uses of tax dollars. They add to the GDP in a way junking a '98 F-150 never will. This ain't Saturday morning. C.A.R.S are not going to save the world.