Cash for Clunkers: A Victim of Its Own Success?

One of the more embarrassing features of the New Deal was the Agricultural Adjustment Act of 1933, which paid farmers to slaughter livestock and plow up good crops, as if destroying useful goods could somehow make the nation wealthier. And yet here we are again, with the cash for clunkers program insisting that working vehicles must be junked to qualify for the subsidy. Economist Mom laments the tragedy and waste, as only an economist and mother could:

I don’t think I can do it…. I mean, look at all the time and money (and love) I’ve poured into the (already) old beagle I adopted almost two years ago. It just seems very wasteful (and somehow “heartless”, even with a car) to prematurely end a “life” that still could be valuable to someone– doesn’t it?

Bradford Plumer (via Free Exchange) has doubts about the environmental or energy benefits:

as we’ve noted before, the actual environmental benefits of this program may well prove modest. The fuel-economy requirements for the new car were, after all, fairly lax: You could in theory trade in a Hummer that got 14 mpg and get $3,500 toward a brand new 18 mpg SUV. That’s still an upgrade (and, in fact, that trade would actually save more gas than upgrading a 30 mpg sedan to a 35 mpg vehicle), but it’s a meager one. And if the upgrades are, in fact, all meager, they could end up being dwarfed by the energy required to manufacture new vehicles.

And yet, the chaos as dealers and consumers try to participate in the program is leading some to describe the program as

among the most successful stimulus packages to come out of Washington since the start of the recession. The boom in car sales will give a much-needed bump not just to auto makers and dealers but also local government coffers that collect taxes on car transactions.

I’ve been suggesting, as has Calculated Risk, that there was a significant potential without the cash for clunkers program to see a strong rebound in auto sales. Perhaps that was about to get started in July of 2009, though doubtless the program has also helped move sales that would have taken place later in the year into July ([1], [2]). But I’m not going to be persuaded that destroying productive physical capital is a way to improve the welfare of the average American.

There’s not much we can do now for those 5 million piglets needlessly slaughtered in 1933. But I’m still hoping that glitches in the DOT computer system end up giving Economist Mom’s beloved beagle an accidental reprieve.

Cash for clunkers

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About James D. Hamilton 244 Articles

James D. Hamilton is Professor of Economics at the University of California, San Diego.

Visit: Econbrowser

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