Pitched as a jumpstart for the recessionary economy and a boon for the environment, the federal government’s “Cash for Clunkers” program has certainly been a hit with the nation’s distressed auto industry.
But is the much-praised program – which promises a $3500 to $4500 government rebate to consumers who trade in their current car for a more fuel efficient and “environmentally friendly” alternative – really a great deal on wheels? Or is it just a cash advance taken from future generations and little more than political exhaust when it comes to reducing pollution?
In theory, the program’s aims are laudable. On the one hand, by encouraging Americans to purchase cars at a time when they otherwise may not, “Cash for Clunkers” is intended to be a stimulus for the economy. It is also an environmentalist initiative, since it involves exchanging cars with low gas mileage for greener models.
In practice, too – at least according to its Congressional champions – the program has been a success. Senator Dianne Feinstein (D-Calif.) asserts that “the original intent of the ‘clunkers’ program was to encourage people to buy more fuel efficient vehicles, and the data so far tells us that's exactly what's happening.”
Not surprisingly, Feinstein believes that the now cash-strapped program should be extended, a view shared by her allies in the House, who voted overwhelmingly last Friday to funnel another $2 billon into the program after it burned through its original $1 billion allotment.
Amidst these Capitol Hill hosannas, some skepticism is in order. In essence, the government is merely offering consumers a $4,500, taxpayer-subsidized bribe to get rid of their old car. That certainly accounts for some of the program’s “success” to date. Who knew that it would be so easy to give away taxpayer money?
The jury is still out on whether the program has been an economic stimulus. The Weekly Standard’s William Kristol observes that instead of helping the unemployed cope with the ailing economy, the funds in the program are being diverted to “bunch of upper-middle-class people who have some cars sitting around from 12 years ago.” Call it welfare for the Prius set.
Proponents of fiscal discipline also do not like what they see. Diane Lim Rogers, chief economist at the Concord Coalition, has warned that since the U.S. government is taking on debt to pay for programs like “Cash for Clunkers,” the program is really being financed by borrowed funds. Rogers notes that the Obama administration and Congress “don’t really think of what the real cost” of the program is. For instance, Rogers points out that, once it’s paid back in interest for the initial debt, the $4,500 credit could end up costing the government $10,000.
Some might argue that such costs are justified as the price of doing good for the environment. But the cost-benefit arithmetic of Cash for Clunkers is not quite that simple. Cars turned in as part of program, for instance, have to be destroyed – something that imposes its own environmental costs. (According to the New York Times, the process of destroying the traded-in cars is also “quite laborious and potentially dangerous.”) In a Washington Post op-ed this week, Gwen Ottinger of the Chemical Heritage Foundation's Center for Contemporary History and Policy pointed out that:
…even when new cars and appliances are more efficient than the ones they replace, the act of replacing them entails environmental costs not accounted for in the stimulus programs. Building a new car, washing machine or refrigerator takes energy and resources… Disposing of old products, a step required by most incentive and rebate programs, also has environmental costs: It takes additional energy to shred and recycle metals; plastic components often cannot be recycled and end up as landfill cover; and the engine fluids, refrigerants and other chemicals essential to operating products end up as hazardous wastes.
Moreover, if the goal is merely to improve fuel economy, there are cheaper and more environmentally-friendly ways of doing it than paying people to buy new cars. As Matthew Bandyk pointed out in US News and World Report, “Changing your fuel filter, getting a tire gauge, and getting your car's emissions system checked can make a big difference.” It’s a lot cheaper, too.
Specific flaws aside, perhaps the biggest question about the Cash for Clunkers program is foundational: Should Washington really be in the car business? After all, if it’s true, as the Obama administration seems to believe, that Americans truly want the eco-friendly cars promoted through the program, why then are they being bribed to purchase them?
In fact, of course, Americans know very well which cars they want to buy. One need only juxtapose the success of Japanese automakers like Honda and Toyota, both known for the high mileage counts of their cars, with the crumbling ruins of Detroit’s Big Three automakers.
Cash for Clunkers has not created a new type of American car consumer. It has merely confirmed the timeless wisdom that everyone likes free cash. The trouble will start when the bill for the government’s automotive spending spree finally comes due.