Cash For Clunkers, Ctd

by Patrick Appel

A reader writes:

Paying actual cash for clunkers to get the high polluters off the highway may be a good idea, but not vouchers for new cars, for two reasons:

1) The cars you really want to get off the road, the heaviest polluters, are in the hands of people who are not and should not be in the market for a new car. If you're driving a beater that ought to be scrapped, what you need is cash buy a better used car, not to be given the down payment on a new-car loan you are likely not to be able to keep up with.

2) Stimulating artificial demand for new cars borrows from future demand. Post 9/11, there were a lot of incentives given by the automotive industry to buy the cars we would have bought tomorrow, today. That's part of why demand is down, now. Do we really want to steal demand from even farther in the future?

Another reader adds:

A $4,500 voucher doesn't allow anyone to afford an additional car. It allows someone who was going to buy a car anyway to buy a more expensive car. With the $4,500, maybe the buyer will upgrade to the hybrid powertrain (good), or maybe he'll upgrade from the 4-cylinder to the V6 (bad), or maybe he'll buy the navigation system, the leather interior, the sunroof, and the fancy stereo (indifferent).

Some of the $4,500 will end up in the pockets of workers on US assembly lines, sure, but some will also end up in the pockets of overseas workers, and some will end up in the pockets of US and overseas executives and shareholders. Who deserve my tax money . . . why?

The US govt would get more financial and environmental bang for its buck if it just spent the $4,500 on unemployment benefits, retraining, more fuel-efficient government fleet vehicles, and more energy-efficient government buildings (which would entail some labor and manufacturing stimulus, too).