I am not the only person who thinks Cash for Clunkers is bad for poor people, but with all the recent analysis dispensed by the talking-head pundit-class seemingly ignoring this simple injustice, I am tempted to think I am among few who do. Clunkers, as you know, is part of an automobile industry stimulus plan signed into law by the Obama administration that enjoys bi-partisan support in both houses of Congress. It is officially called the Car Allowance Rebate System, or CARS.
Apparently the program gained popularity after an op-ed by Alan S. Blinder appeared in the New York Times in July 2008. Mr. Blinder's essay was titled "A Modest Proposal: Eco-Friendly Stimulus."
Mr. Blinder (there's a name!) made three claims in his piece, first, that the plan would lead to a cleaner environment, second, that it would distribute income more equitably, and third, the plan would stimulate the economy.
Any reasonable person could doubt Mr. Blinder's claims, especially his claim that this plan would be good for poor people; that it would be "more equal":
"MORE EQUAL INCOME DISTRIBUTION It won’t surprise you to learn that the well-to-do own relatively few clunkers. Most are owned, instead, by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor."
It seems to this writer that Mr. Blinder does not live in the real world. Who buys clunkers -- allegedly gas-guzzlers -- when they are new? The poor? Or the more "well-to-do"? That 1982 Cadillac that sits in the apartment complex in downtown Louisville; did a poor person buy that when it was new? The BMW 740s and the Chevrolet Suburbans and Ford Excursions; did poor people drive these off the lot when they first left the showroom? What about Hummers and Acura MDXs and Ford F-350s? None of these are particularly fuel efficient -- at least in a strict MPG comparison -- but surely it was the more affluent Americans who first drove these off the lot.
The same can be said for nearly any new car, especially the most fuel-efficient ones: Honda Civics are not cheap, at least compared to a lot of entry-level vehicles; and it is not the Honda Civic Hybrid that the poorest buyers purchase new, is it? See that 1998 Subaru wagon over there with temporary plates? That car was not recently bought by a rich person. (Well, in New Hampshire, where I am, one can never really tell.)
The fact is that almost every clunker on the road today that matters was purchased by someone who rather recently bought it used -- because a Clunker was all that person could afford. Cars trickle down just like technology trickles down: the safest, most fuel-efficient and technologically advanced cars NEVER start as entry-level offerings. Never. The best engineering always starts higher up. Yes, it is a sad irony that those who could benefit the most from a hybrid-like fuel mileage rating in their vehicles can't afford it. But that's the way of innovation.
And by the way, for most of my life I've been a Clunker driver. A used Clunker driver.
And by the way, for most of my life I've been a Clunker driver. A used Clunker driver.
What does Cash For Clunkers do? It takes cars out of the marketplace that benefit the poor. To hell, really, with the idea that this "saves the environment." Poor people may drive inefficient cars, but they drive far fewer miles to begin with. Do readers know what happens to clunkers that are traded in for new cars? The auto dealership has to destroy the engine, and then crush the old clunker (fines WILL be levied if even certain parts from the clunkers are recirculated in a used-parts market). Just think of the economic foolishness this single fact represents. But think of the environmental impact as well: the auto industry and its parts-manufacturing complex have to deplete more of the earth's resources and consume more energy to create "new" stuff, all of which ARE the clunkers, or parts of the clunkers, of the future. Remember, that Toyota Prius you've got your eye on is a Clunker in the years ahead.
Who benefits economically from all of this? Not the poor, that's for sure. Mr. Jones, who has a Mercedes E-Class for himself, a BMW X5 for his wife, and an old Ford F-250 he uses around his gentleman's farm, will tool down to the nearest Clunker rebate center with his Clunker pick-up truck for the $4500 kickback he can use to get his 16-year-old daughter a brand new Honda Accord. But the poor man down the road who last year bought a dirt cheap Jeep Cherokee for his family will NEVER trade in his Clunker because he knows that even with a $4500 rebate he can't afford the monthly payments on a single new car that sits on the lot. And if he is approved for a line of credit, isn't he a high-risk borrower? Doesn't this perpetuate the sort of reckless lending and borrowing that have undeniably damaged the American economy?
Lest I give you the impression I am the only one thinking this way, let me cite "Marshall," who posted the following comment at Econbrowser:
One should consider the ever present unintended consequences [of the Clunkers program]. If the additional funds are approved, 750,000 usable cars that can be used by those who cannot afford a new one will be gone. How many additional people will be laid off from the auto replacement parts companies with a significant part of their customer base gone? Have an additional 750,000 people just taken on additional debt that they would not otherwise have done? How many additional foreclosures and cutbacks in spending in other areas will result? This crisis was caused by excessive leverage and this only intensifies the problem.
Cash for Clunkers is a NOT a good idea. It is NOT a good plan. It is really a stupid plan.
And it hurts the poor.
