Tuesday, August 18, 2009
American Recovery and Reinvestment Act
Saturday, August 08, 2009
Is Cash For Clunkers Actually a Good Idea?
Cash for Clunkers destroys productive capital and does it at a cost that is far, far greater than the value of any delay in fuel consumption that will result from replacing some miles driven with a more efficient vehicle or the reduced congestion due to the smaller number of cars that will be on the road (when we return to full productive capacity, there will be less cars on the road than there otherwise would have been for a few years).
We won’t see much net economic improvement due to the change in capital structure (the shifting of money from tax payers to auto companies and financiers) or any net improvement due to slightly faster attrition in the vehicle fleet.
We might actually see a net improvement in both our transportation efficiency and economic productivity though. Not for any of the reasons suggested by lawmakers, but because of who Cash for Clunkers takes off the roads.
Cash for Clunker will produce effects similar to congestion pricing. Differences in the vehicle fleet make-up won't improve anything, but Cash for Clunkers will make it more expensive for some of the least efficient, least productive, least experienced, slow, and most dangerous drivers to drive.