Cash For Clunkers: Why It Works

Some folks, including many of my friends, will have plenty of bad things to say about this idea.

I'm worried about losing old classics...being a car guy myself...and I'm worried too that we're spending more taxpayer money for private purposes.

But, even though I'd do a few things differently in the end, I think the basics will help accomplish several goals. Primarily, it's very rare that government action can achieve benevolent "policy trifectas." Here though, we can do a lot to encourage business, protect the environment / human health, and reduce societal costs.

There's even evidence from abroad (Germany, for example) that these "scrappage" schemes are working to motivate people to write checks. So, maybe this is a quatrofecta!

Better yet, by reducing our dependence of fossil fuel, we might have a pentafecta on our hands. :)

By providing cash for "clunkers," we the people can provide some help to the ailing automobile industry, and by replacing old, inefficient, and unloved vehicles with new, more efficient, and better loved products, we can (among other things) do the following:
1) Reduce dependence on fossil fuel (foreign and domestic)
2) Remove unsafe vehicles from the road
3) Encourage recycling and recovery
4) Reduce multiple forms of pollution

Now, what about perverse incentives, market distortion, and the social engineering/welfare/handout negatives?

Well, those are valid points. And, under a strict cash for clunkers scheme, I might agree.

However, using my idea from many months ago...to extend MACRS to individuals, the situation would advantage vehicle purchases for everyone in the same way that businesses are presently enabled.

Regardless, in the cash for clunkers scenario, those aforementioned negatives aren't really negatives and here's why:

1) Social Engineering / Handouts / Welfare State - every new car purchased will be followed by numerous taxes. So, don't worry that this more money going to those who don't deserve it. Well, maybe it is, if you're cynical and don't think the gov't deserves any more. ;) Here, the gov't (in some form) will probably recoup more than the outlay, thus recovering the money (borrowed or inflated). Every new car sold will burdened by sales tax, property tax, licensing, and yearly renewals.

2) Perverse Incentives - if this legislation is crafted properly, these can be largely avoided. For instance, require ownership of the "clunker" for a period of time.

3) Market Distortion - the market is (not that this is OK) already distorted in numerous ways. Here, however, this is actually a chance to correct bad decisions, past mistakes, and unsustainable errors in a number of spheres. In particular, cheap oil (among other things) helped drive the SUV craze in the US.

Provided that all newer cars are significantly safer than their predecessors, the newer cars should have fewer accident claims resulting in lower car and health insurance claims.

Provided that all newer cars are significantly more efficient/cleaner to operate than their predecessors, the newer cars should have few emissions resulting in healthier air, cleaner cities, and less fuel use. Clean air also means healthier people, lower healthcare costs, more productive happy people, and thus lessens the burden to society.

Granted, there are potentially numerous unintended consequences that could occur through these scrappage and cash for clunkers schemes. However, any time conservation, efficiency, sales, and production can be supported...the net-net to me seems positive.