Thursday, August 13, 2009

Cash for Clunkers: Congress and Parliaments in Fantasyland. Why Not Knock Down Old Houses?

Picture above is from The Economist.

If Congress suddenly required every car and truck in America (all 250 million of them) to be immediately destroyed and replaced with new cars and trucks that got better gas mileage, would the country be worse off or better off? Those members of Congress who voted for the "cash for clunkers" program would probably say "better off," even though a perfectly good auto and truck stock would be destroyed.

The congressional clunker caucus would say millions of workers would be employed to replace all of the existing cars and trucks. Yes, that would be true, but everyone else would be poorer. Those who had to buy a new car would have less money to spend on everything else, which would mean fewer jobs in the rest of the economy -- more autoworkers but fewer farmers, teachers and medical researchers -- not a good trade-off.

Members of Congress would then say that we are saving gasoline by having a more efficient auto fleet -- which ignores the fact that building a new car takes far more resources, including petroleum, than could possibly be saved by the gain of additional miles per gallon.

Congressional "logic" could also be applied to housing.

Why not knock down all houses built in America before 2000 and replace them with new and more energy-efficient houses? Wait -- we already evidenced the results of that experiment -- it happened in New Orleans. Rather than the government directly knocking down the houses, Hurricane Katrina did it for us. Are the people of New Orleans better off or worse off because of Katrina? Are all of the American taxpayers who footed much of the rebuilding cost -- hundreds of billions of dollars -- better off or worse off because of Katrina?

~"Congress in Fantasyland," by Cato's Richard Rahn

Originally posted at Carpe Diem.

16 Comments:

At 8/13/2009 9:11 AM, Anonymous Ian Random said...

I think a more effective scheme to encourage employment would be to hire professional window breakers.

 
At 8/13/2009 9:29 AM, Anonymous Junkyard_hawg1985 said...

I drive a clunker. My car is a 1996 Dodge Neon with 156,000 miles on it. The radio doesn't work, the air conditioner does not work, the struts are bad, the paint is peeling. However, I am not eligible for a $4500 credit because I have been environmentally friendly by driving a car that gets 32 mpg. Congress was still nice enough to let me participate in the program. They are going to "allow" me to pay for the rebates for those who chose to drive low gas mileage vehicles for all these years.

 
At 8/13/2009 9:42 AM, Blogger QT said...

Ironic that Obama claimed to be better at econ than McCain.

...and he's never wrong...

 
At 8/13/2009 9:48 AM, Anonymous GregL said...

The article makes fun of Congress for the logic in bills it never passed.

This article is a waste of time.

 
At 8/13/2009 9:59 AM, Blogger atucsonman said...

My clunker isn't environmentally friendly but it is very very cost effective for me and I still economically support the auto repair shop but far less than the cost of a new car.

 
At 8/13/2009 10:07 AM, Anonymous Anonymous said...

It's already being done. Banks are tearing down perfectly good new homes on developments they've foreclosed on with the permission of government.

In another market, dairy farmers are slaughtering cattle and dumping milk while unemployment rates are rising. Milk prices are already supported by price floors.

We are watching the CRIMINAL destruction of goods by cartels, depriving consumers of low cost goods, to artificially raise prices - all with the encouragement of government and paid for with taxpayer dollars.

The highly leveraged and guaranteed FHA loans, the mortgage interest deduction, the income tax credit, and the mortgage modification efforts are TRANSFER payments, supporting the scumbags who caused this crisis.

The stock market is rising based primarily on Financials whose balance sheets are buoyed by bailout funds and one-off sales of assets and unemployment numbers obscured by discouraged workers.

Meanwhile, in the midst of all this government intervention, you celebrate the turnaround in the markets as if it is a market recovery rather than another government induced binge-purge.

 
At 8/13/2009 10:55 AM, Anonymous Rand said...

In June, I replaced my 1999 Buick with a used 2007 Honda Accord Hybrid.

I really could have used some CARS money to lower my monthly payment but my "new" car was too old to qualify and the CARS program was not in place yet. Even so, my fuel economy was improved by over 10 mpg (from 20 mpg to over 30 mpg).

So, even though I did the right thing by unloading my fuel hog, I still have to pay higher taxes to subsidize others who replace their cars.

One of my co-workers wanted to replace his decrepit Nissan with a hybrid, but because the Nissan was rated at over 30mpg, it did not qualify for clunker cash.

What a rip off!

 
At 8/13/2009 11:47 AM, Anonymous Junkyard_hawg1985 said...

Wow, today's retail sale results came out today and it showed car sales up 2.4% and the rest of retail sales down 0.6%. Who would have thought that people spending more money on cars would have caused them to spend less elesewhere. Certainly not Congress.

 
At 8/13/2009 3:43 PM, Blogger 1 said...

Gee! Does anyone else think that 'cash for clunkers' might have driven the following at least in part: Retail sales dip unexpectedly, jobless claims rise?

 
At 8/13/2009 8:20 PM, Blogger mongander said...

Better yet, cash for Clunker-People.. unemployed, retired, sick,ugly,etc. Give free funerals, headstones, and glowing obits.

 
At 8/13/2009 10:56 PM, Blogger OBloodyHell said...

> The article makes fun of Congress for the logic in bills it never passed. This article is a waste of time.

GregL makes light work of a piece for reasons that have no connection to reality, and demonstrate his utter failure to be able to make the fairly straightforward connection "this is blatantly stupid, and it's based on the same notion as that, so that must be stupid, too"

Hence, GregL is a waste of time.


Anyone besides GregL unable to make that connection?
.

 
At 8/13/2009 11:00 PM, Blogger OBloodyHell said...

> We are watching the CRIMINAL destruction of goods by cartels,

.

It's not the cartels that are doing it, per se.

If the government wasn't paying them to do it, it wouldn't be happening, and the market would work as it should, driving the least efficient producers out of the markets, as it should.


Government is not your friend.

Government is a necessary EVIL.

Be nice if we can get a new generation that grasps this obvious fact.

 
At 8/13/2009 11:09 PM, Blogger OBloodyHell said...

> So, even though I did the right thing by unloading my fuel hog

> but because the Nissan was rated at over 30mpg, it did not qualify for clunker cash.

The whole thing is a rip-off anyway.

1) The average improvement in mpg for the replaced cars is 16mpg to 26 mpg.

2) The average person who drives in the USA averages 10k to 12k miles per year.

3) Divide those two mpg numbers into 12k/yr to get fuel used/yr.

4) Take the difference, multiply it times $3.50/gal to find fuel savings per year. This number is roughly $1000/yr.

In short, it's going to take 3-4 years before the amount of fuel saved alone equals the cost of the program.

There's a reason the government has to PAY people to do this. It's a stupid, idiotic notion that it's saving money at all, since the cost of destruction of a functional asset (required of auto manufacturers by the program) uses more energy than the energy saved by the improved fuel economy.


As "Ian Random" alluded to at the beginning of this comment thread, this is a blatant example of the Broken Window Fallacy in operation.

Welcome to Obamanomics, which, as you'll note, uses "Algebro" to solve its math problems.

 
At 8/13/2009 11:14 PM, Blogger OBloodyHell said...

> Wow, today's retail sale results

LOL, nice point. Wait til next year, too, when new car sales go back in the toilet because 75% of the car purchases that would have occurred then happened now instead.

Just another aspect of the Obamanomic Ponzi Scheme -- Rob Peter to pay Paul, who you robbed in order to pay William, who was robbed in order to pay Greg... and so on.

Corollary to that: At some point, the gun gets pointed back at Paul, again.

At least, until someone has sense to shoot the bastards running the Ponzi scheme.

 
At 8/14/2009 8:49 AM, Anonymous Junkyard_hawg1985 said...

"4) Take the difference, multiply it times $3.50/gal to find fuel savings per year. This number is roughly $1000/yr.

In short, it's going to take 3-4 years before the amount of fuel saved alone equals the cost of the program."

Great Post! Using slightly different numbers: At $2.50/gallon gas (what I currently pay) and 12000 miles per year, it takes over 6 years to pay for the $4500government subsidy. Within that 6year period, how many of those clunkers would have been replaced anyway without a government check?

 
At 8/14/2009 3:34 PM, Blogger ExtremeHobo said...

Also take my girlfriends father for example. About a year and a half ago he bought two full size vans for $800 a piece. He never drove these vans, but drove his old honda everywhere. This plan gets passed, he sells his giant van that he never used, gets a net $3700 for it, and buys an SUV that he now drives everywhere. Did the environment win at all there?

 

Post a Comment

Links to this post:

Create a Link

<< Home