Wednesday, August 5, 2009

The Economist Behind Cash for Clunkers

You knew it had to be a Keynesian, right? Well, yes.

But he is much more. He is an eco-Keynesian egalitarian.

That is, Cash for Clunkers was heavily promoted by Princeton economist Alan Blinder.

Blinder, in July last year, wrote what he termed a "modest proposal:

Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Here's my humble suggestion: “Cash for Clunkers,” the best stimulus idea you've never heard of.
He justified the program on three levels:

A. It would make for a cleaner environment:

A California study estimated that cars 13 years old and older accounted for 25 percent of the miles driven but 75 percent of all pollution from cars. So we can reduce pollution by pulling some of these wrecks off the road. Several pilot programs have found that doing so is a cost-effective way to reduce emissions.
B. It would promote more equal income distribution, since low-income families are more likely to own clunkers.

C. It will stimulate the economy.

As for point A, aside from the question of why taxpayers should be paying money to polluters instead of ordering the polluters to just stop, some economists argue that the cash for clunkers will cut down dramatically into the supply of used cars shipped from the U.S. to Mexico, which in the past has has improved the gas mileage and emission standards in the Mexican automotive sector.

On point B, "more equal income" distribution is simply another straw on the camels back that will lead more and more high income producers to stop producing.

And, of course, with point C, the "stimulus" impact. Blinder simply ignores the money that has to be taken from others to pay for the clunker.

In short, Cash for Clunkers is really what government is all about, spewing out money for clunker ideas.

1 comment:

  1. RE: point A...

    How much energy did it take to produce the new car that the "clunker" replaced?