Clunk
Sorry to mix metaphors, but Cash for Clunkers is a bit of a lemon in my book. Here's how Jeffrey Miron "Cash for Clunkers Is a Clunker.":
Under the terms of the program, any used car that is traded in must be scrapped, and key parts like the engine and drive train destroyed. Thus the program pays people to junk cars that still have economic value. A good friend, for example, is planning to trade in a car that is in good working order. Before the program, he had planned to use the car for another couple of years. How can it make any sense for policy to encourage the destruction of working cars?
Answer: it doesn't make sense, fiscally or environmentally. And by the way, not surprisingly, car donation places have taken a big hit. Someone else's trash can still be someone else's treasure.
To offer a parallel example, there's an old rug in my daughter's room that we're going to toss when we move her up to her new bedroom. In my wife's mind, it's unsalvageable, but I insist on schlepping it down the street to the secondhand store. Hey, just because we have no use for it doesn't mean someone else doesn't. I get a tax deduction, the secondhand store makes some revenue, and some lucky duck gets a nice used rug at a bargain basement price.
But if the government had a "Cash for Carpets" program because it decided old carpets were less energy efficient and we needed to support the sagging carpetmaking industry, I'd fill out reams of paperwork to get a cash bonus for turning my old carpet in to be incinerated, and both the secondhand story and the previously lucky duck are, well, out of luck. Then the government would pat itself on the back about how much money they gave away and how many new carpets got bought, not realizing that's our money they're giving away and that every month new carpets get bought irrespective of any federal government program. And never mind that such a treatment that destroys old carpets and encourages the production of new carpets is antithetical to the environmentalist's mantra of "reduce, reuse, recycle."
But hey, "Cash for Carpets" has a nice ring to it.
Comments
Of course, you and I both know the best way to get what you want is to get the price of energy correct (i.e. by internalizing the externalities), and then people will be properly motivated to trade in their old thing for a new thing when it makes sense for them to; and, magically, everyone and the environment achieve optimal benefit. $4 a gallon gas was already getting some people to trade in their SUVs for smaller cars and their drive commutes with transit commutes, and impending rate cap removals here in Pennsylvania are getting businesses to figure out how to become less electricity hogs.
Unfortunately, the calculus in Washington and in our state capitals is that "simple and effective" is less attractive than "clunky and ineffective but well-meaning." Well, if government won't respond correctly, it's entirely possible the "invisible hand" will on its own: China's cavernous demand for energy may very well drive prices high enough to make a difference, and another blackout or three may give politicos the cover to properly bake capital investments into the cost of our utilities. But I'd much rather be pro-active and do this on terms that make sense for us, than to react to external forces and unforeseen tragedies.
http://www.cato-at-liberty.org/2009/08/21/cash-for-clunkers-dumbest-program-ever/