Market Power

Cash for Clunkers Hurt the Environment More Than it Helped

Back in 2009, President Obama’s “Cash for Clunkers” program was supposed to be a boon for the environment and the economy. During a limited time, consumers could trade in an old gas-guzzling used car for up to $4,500 cash back towards the purchase of a fuel-efficient new car. It seemed like a win for everyone: the environment, the gasping auto industry and cash-strapped consumers.

Though almost a million people poured into car dealerships eager to exchange their old jalopies for something shiny and new, recent reports indicate the entire program may have actually hurt theenvironment far more than it helped.

Story here.  Well it was probably more about giving back to the UAW than it was about the environment anyways, so it had that going for it.  Which is nice.

More on Cash for Clunkers Being a Clunker

According to proponents of the cash for clunkers program, the program would boost sales of environmentally-friendly automobiles, boost the jobs of automakers, and help the environment.  To cynics, the program would be little more than a rescue to the automakers and their unions.  To its critics, the program 1) would not increase the demand for automobiles except for shifting demand from one period to another.  In addition, critics argued,  2) if it did succeed at reducing CO2 emissions, it would do so inefficiently.  There is already evidence for #1 (see here).  John Palmer links to another piece that provides evidence for #2.

Burton Abrams and George Parsons of the University of Delaware evaluate the efficiency of the recently introduced 'Cash for Clunkers' program and conclude that the cost exceeds the benefit by approximately $2000 per vehicle.

What's that that Milton Friedman said about using other people's money on yourself?  Something about caring for the benefits but not so much about the cost.  So this doesn't surprise me at all. 

Don't forget the problems some dealers have had getting paid by the government.  And there's evidence that consumers who participated in cash for clunkers have double the rate of buyers remorse of the typical car buyer.

And still, some people want to expand governmental reach into health care markets, despite the theory and evidence that shows government involvement in private goods markets often leads to less than desirable results.

Cash for Clunkers

Megan Woolhouse of the Boston Globe writes that the Cash for Clunkers problem did not increase the demand for cars.  Instead, she argues that it just shifted demand from one period to another.  Via Michael Graham via Glenn Reynolds.  Warren Meyer has more thoughts here.