Is Buying Up the Country's Clunkers Smart, Eco-Friendly Policy?

old car photo

Image from Bogdan Suditu

I admit upfront that I'm no economic whiz -- in fact, far from it -- so you'll have to take my "analysis" of Alan Blinder's national "Cash for Clunkers" policy with a (heavy) grain of salt. Put simply, it seems like a great idea to me and, unlike many of the other eco-friendly policies I've read about that show promise, might actually be politically feasible.

Basically, the idea would be to have the federal government buy up many of the country's oldest, most polluting cars and scrap them; the owners, who would likely
be lower-income individuals, would be paid at above-market prices and allowed to spend the money however they would see fit. By removing the most polluting vehicles from the roads, which account for 75% of all pollution from cars (while only accounting for 25% of all miles driven) according to Blinder, and disbursing cash to low-income households, the policy would help to both dramatically reduce emissions and alleviate income inequality. He points out that those lower-income consumers, who tend to live paycheck by paycheck, would be more likely to spend the money immediately -- providing a welcome boost to the economy.

Here's how he foresees the policy working in action:

The government would post buying prices, perhaps set at a 20 percent premium over something like Kelley Blue Book prices, for cars and trucks above a certain age (say, 15 years) and below a certain maximum value (perhaps $5,000). A special premium might even be offered for the worst gas guzzlers and the worst polluters. An income ceiling for sellers might also be imposed — say, family income below $60,000 a year — to make sure the money goes to lower-income households.

The numbers in this example are purely illustrative. By raising the 20 percent premium, lowering the 15-year minimum age, or raising the $5,000 maximum price or the $60,000 income ceiling, you make the program broader and costlier — and create a bigger stimulus. By moving any of these in the opposite direction, you make the program narrower, cheaper and smaller.

More important, he notes that similar programs are currently or have been in operation in several states, and that they have already shown measurable success. He believes that a national program -- one that would buy out at least 75 million clunkers (reasoning that 30% of the nation's 250 million cars and light trucks are 15 years old or older) for an average purchase price of $3,500 -- would cost less than $20 billion, at 5 million cars a year. This would be a much better deal than the $168 billion stimulus package that was enacted by the Congress earlier this year, he argues.

Some of these numbers are likely to change and there's still the question of how the government would scrap all those cars, of course, but, on the whole, it seems like a good proposal. With energy prices on the upswing, low-income individuals may opt to take the cash and switch to public transit (instead of buying a new car), or, if they do decide to buy one, at least trade up and get a more fuel-efficient hybrid vehicle. I'm curious to hear what some of you policy and econ mavens have to say.

Via ::The New York Times: A Modest Proposal: Eco-Friendly Stimulus (news website)

More about the economics of climate change and the environment
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