Alan Blinder in today’s New York Times, argues for an ostensible stimulus package (hey, since more stimulus packages are probably in the offing, better register your preferences early) that will help the environment. But what I like about it is that it would cost so little that it barely rates in the “let’s goose the economy” category.
The idea is that the government buys old cars of types that are just about certain to be heavy polluters. This is the dirty secret of auto emissions: the vast majority of the damage is done by a comparatively small percentage of cars. The program is means tested, so only those of middle and lower incomes can participate.
Although this initiative would do nothing to remedy America’s dependence on the internal combustion, it’s an interim measure that yields tangible benefits at a comparatively low price.
From the New York Times:
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 performing a remarkable public policy trifecta — stimulating the economy, improving the environment and reducing income inequality all at the same time. Here’s how.
A CLEANER ENVIRONMENT The oldest cars, especially those in poor condition, pollute far more per mile driven than newer cars with better emission controls. A California study estimated that cars 13 years old and older accounted for 25 percent of the miles driven but 75 percent of all pollution from cars….
MORE EQUAL INCOME DISTRIBUTION It won’t surprise you to learn that the well-to-do own relatively few clunkers…
AN EFFECTIVE ECONOMIC STIMULUS With almost all the income tax rebates paid out, and the economy weakening, Cash for Clunkers would be a timely stimulus in 2009…
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…
Cash for Clunkers is not the pipe dream of some academic scribblers. Local variants are either now in operation or have been tested in California, Colorado, Delaware, Illinois, Texas, Virginia and several Canadian provinces. So there is no need for a “proof of concept.”…
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 (the top price in the Texas program today). Including all the administrative costs of running the program, that would probably cost 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. 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. 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.
And what would all this money buy? First, less pollution. The Texas program estimated that clunkers spew 10 to 30 times as much pollution as newer cars. Second, the subsidy value (the 20 percent premium in my example) is a direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive — not just the subsidy, but the entire payment, giving the economy a much-needed boost.
One has to be mindful of perverse outcomes. A large-scale version of the program would drive up the cost of clunkers and over time distort blue book values. There is also the problem of what do you do for transportation once you’ve sold your cheap old car? It’s not as if a 20% premium is going to enable sellers to trade up to a much better car. They’ll most likely be trading out of a very old car to a slightly less old car.
It’s the need to obtain some replacement form of transportation that would enable the program to stimulate the economy. Although this year’s rebate checks were not targeted at lower income groups, economist Gary Shilling estimated that 80% of the proceeds went to savings, not spending. For the less affluent, that might take the form of getting some headroom on debt payments (reduction of indebtedness is a form of savings)