More Cash For Clunkers

Our View: The Government's Incentive Program To Boost Sales Of Fuel-efficient Cars Is What The Stimulus Is All About - Accomplishing Multiple Goals With One Investment

August 04, 2009

It took just more than a week for American consumers to scoop up the $1 billion the federal government devoted to its "cash for clunkers" program as the incentive created a frenzy at the nation's car dealerships the like they haven't seen for years. The House of Representatives voted quickly last week to extend the program by transferring another $2 billion from another part of the federal stimulus program, and the Senate should follow suit. This program is exactly the kind of thing the stimulus should be made of because it accomplishes multiple goals with one investment.

A main criticism of cash for clunkers has been that the incentives are merely helping people who would have bought new cars anyway. Former Federal Reserve Chariman Alan Greenspan is the chief spokesman for that argument. Appearing on ABC's "This Week," he said the success of "clunkers" proves that the economy is picking up; had it come six months ago, he said, "it would have probably been a dud." That may well be true, but it doesn't mean that the economy no longer needs help.

Others say the program's success is just proof that the government should have been sending rebate checks all along rather than trying a complex stimulus plan. But evidence from the previous times the government has tried that approach is that it doesn't work. University of Michigan economists Matthew D. Shapiro and Joel B. Slemrod concluded that about a third of the 2008 rebate checks were spent, with the rest of it going to savings or paying off debt.

By contrast, 100 percent of the cash for clunkers money is going directly into the economy, and that's not its only benefit. It supports an industry that we've already invested billions in; it improves the environment by getting inefficient cars off the road (the clunkers must be sold for scrap, with their engines and transmissions rendered inoperable); it helps consumers' long-term finances by getting them into cars that will cost them less for gas; and it does all of that almost immediately with little bureaucracy.

Some senators are pushing for stricter environmental standards for the cars people purchase through the program, and that would certainly be welcome. As it stands, drivers can get $3,500 for an improvement of as little as 4 miles per gallon.

But it seems that car buyers are coming to that decision on their own - the most popular car to be turned in at Ford dealerships was the Explorer (about 16 miles per gallon combined city/highway) and the most popular car bought was the Focus (better than 29 miles per gallon). That switch saves about 5,600 pounds of carbon dioxide emissions every year - and at current prices, about $806 a year in gas. Everybody wins.

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