Cash for Clunkers fail

Jason Kuznicki makes some very good observations. Noting that the destruction of cars – if it were ever to generate wealth – would only be the first among many goods we could destroy to generate said wealth, he writes:

No, the appropriate course would be to generalize, and to destroy all goods in exchange for government scrip. Then we could play Monopoly, I guess, for what all good the money would do. But we’d have to scrape a board in the dirt to do it.

That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it. When the goods disappear, the economy grows poorer, regardless of how the money is shuffled around.

And the payback isn’t long in coming — today’s used car prices are soaring owing to reduced supply. (This link gives even more dramatic numbers, but I’m less sure of them. h/t Radley Balko.)

See how that works? You can’t get something for nothing. Cash for Clunkers turns out to have been a highly inefficient wealth-transfer program, that is, one that destroyed a bunch of wealth along the way. It gave wealth to those already relatively wealthy people who did the government’s bidding (that is, those who could afford to part with a used car and buy a new one). And now it’s taking wealth from those relatively poor people who need a used car today — in the form of higher prices.

Along the way, it destroyed hundreds of thousands of cars — that’s the real wealth these poor people don’t have access to anymore, because the scrapped cars aren’t a part of the economy.

On top of being a renter, I’m also a used-car buyer. When Cash for Clunkers was implemented I went to check out what I could get for my own clunker (which still drives fine, by the way), and everything was out of my price range. However, a ‘99 Honda CRV was affordable enough, so we got that instead, from a private seller. A new one would have cost about four times as much even with the government credit.

Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed, artificially inflating the cost of used cars by diminishing their supply and likewise artificially bolstering the demand for new, expensive cars. This is a fairly obvious transfer of wealth from the poor and working class to the middle and upper class. Whatever stimulative effect it may have had, it was also an act of destruction and a temporary fix for car dealers and automakers at the expense of low-income consumers. I’m all for stimulus, but let’s keep it productive. Let’s build things with our stimulus dollars, not destroy them.

Breaking windows is no more economically sensible than blotting out the sun to protect candlestick-makers. If we want to create jobs with tax dollars let’s at least get to work patching up our dilapidated infrastructure or investing in a new, better infrastructure of the future. We’ll leave fewer casualties in our wake.

107 replies
  1. 1
    me says:

    Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed,

    Actually no, the gas mileage of your CRV is too good to qualify for Cash for Clunkers.

  2. 2
    cleek says:

    no mention of the ostensible reason C4C existed at all: to get fuel-inefficient vehicles off the road and replace them with newer, more-efficient vehicles ?

    it’s not about wealth, it’s about pollution.

  3. 3
    Dean says:

    E.D. kind of skirts over the whole gas-guzzling aspect of the program—it wasn’t just clunkers, but clunkers that had extremely poor mileage. I don’t necessarily argue with the supply issue, but the cars that were destroyed were among the poorest mileage vehicles on the road. I haven’t seen any discussion of the environmental impact of the program, but it certainly wouldn’t make sense to to put these inefficient vehicles back into service.

  4. 4
    Violet says:

    @cleek:

    it’s not about wealth, it’s about pollution.

    Yep. That was the goal behind the program.

  5. 5
    MobiusKlein says:

    I was going to make Cleek’s point, but an even smarter C4C would have saved the best, most efficient of the traded in cars and sold them to replace even more inefficient & polluting cars out there.

  6. 6
    Frank Chow says:

    “Let’s build things with our stimulus dollars, not destroy them.”

    We could invest in public transit, so that you may get your CRV off the road. It would be both stimulate and effective in curbing the pollution. Radical idea, I know.

  7. 7
    Sweet Fanny Adams says:

    @me: Exactly!

  8. 8
    catclub says:

    Isn’t this post about 16 months late? I remember all these arguments against the CFC program then. And they were timely!

    Yglesias had lots of posts about how the stimulus shouldn’t just reinforce the present transport system, but it did.

    CFC and the Homebuyer boondoggle were clearly pushed by auto dealers and real estate – who have lots of lobbying power.

    Road construction by the road construction lobby. The solar and wind power lobbies have nothing like their clout, and the results reflect that. No one was surprised then. What took you so long?

  9. 9
    JenJen says:

    @cleek:

    it’s not about wealth, it’s about pollution.

    Yeah, I always thought that was the point, too.

  10. 10
    Eric U. says:

    I was surprised that our van didn’t qualify for cash for clunkers. I think it gets over 30mpg when it’s going downhill. I don’t think most of them were cars we could afford to have on the road.

  11. 11
    Jules says:

    I don’t know what this means in relation to cash for clunkers, but we are having a hard time finding a car in the $1000-$1500 for our 18 year old son (he’s paying for it, we are trying to give some direction so he does not buy that Jeep that has no roof or doors but is so “fucking cool”) had assumed getting an older car that still ran but maybe looked like shit would be fairly easy.
    It’s not.

    I think we will have to look at 70’s-80’s trucks maybe….

  12. 12
    PeakVT says:

    C4C wasn’t about environmental policy. It was about helping the auto manufacturers by getting excess product off of dealer lots. Nothing else.

  13. 13

    @me:
    Beat me to it. My 93 Camry wasn’t eligible either.

  14. 14
    Daddy-O says:

    Where is the data suggesting these used cars are being dismantled and destroyed? Was that the original intent of the law? Did it demand the destruction of these cars instead of re-selling them?

    Destroying a carbon-spewing clunker and replacing it with a hybrid or sub-compact is a PLUS for the environment. Measure THAT one.

  15. 15
    Citizen_X says:

    In addition to abating pollution, it was also supposed to help keep dealers afloat at a particularly bad time, wan’t it? So in terms of “destroying wealth,” did it not do so in a more constructive way than, say, the FIRE sector? Or is the latter so freemarkety that we can’t look at it critically?

  16. 16
    Violet says:

    @PeakVT:
    That’s why it got passed and put into effect, as opposed to some other programs that might have been better. But if it was just about that, then every car would have qualified, and as several people above have pointed out, the CRV didn’t qualify. So there was definitely an ‘improving-pollution’ aspect to it. Vehicles with better gas mileage didn’t qualify.

  17. 17
    cleek says:

    @PeakVT:

    i don’t doubt that was a huge part of it. but look at the list of cars traded-in vs sold:

    Ford Explorer 4WD
    Ford F-150 pickup 2WD
    Jeep Cherokee 4WD
    Ford Explorer 2WD
    Dodge Caravan/Grand Caravan
    Jeep Grand Cherokee 4WD
    Chevrolet Blazer 4WD
    Chevrolet C 1500 pickup 2WD
    Ford F-150 pickup 4WD
    Ford Windstar minivan

    Toyota Corolla
    Honda Civic
    Toyota Camry
    Ford Focus
    Hyundai Elantra
    Nissan Versa
    Toyota Prius
    Honda Accord
    Honda Fit
    Ford Escape FWD

    it really did replace inefficient vehicles with efficient ones.

  18. 18
    MeDrewNotYou says:

    @cleek: While I think that was the main rationale (environmental, not economic), I wasn’t really paying attention when it was being discussed last year. Anyone with better Google-fu care to give me examples?

  19. 19
    me says:

    @Daddy-O: The cars that qualified had their engines disabled so they would never run again. What happened to them afterward, I don’t know.

  20. 20
    Daddy-O says:

    @catclub: The most timely thing about this post is the present price of used cars.

    Some New Cars Now Cheaper Than Used Cars

    Indeed, some new cars end up costing less than used ones. “It is worthwhile for a bargain-hunter to consider looking at heavily incentivized new cars, which in some cases are less expensive to buy than used cars given the dynamics of today’s marketplace,” said Edmunds.com Senior Consumer Advice Editor Philip Reed.

    It’s absurd, but a sign of the times…

  21. 21
    Sentient Puddle says:

    On the environmental policy, I believe the purpose was to get the worst of the worst off the roads both because it was the low-hanging fruit, and also because that would have the biggest impact on reducing emissions. It might seem counter-intuitive, but if you math it out, a (hypothetical) increase from 10 MPG to 20 MPG saves more fuel than an increase from 20 MPG to 30 MPG.

    On the economic policy, this may be pretty removed from the overall point, but it strikes me as strange to use automobiles as a measure of wealth. Those things depreciate in value as soon as you drive it off the lot, and just keep going down.

  22. 22
    PeakVT says:

    @Violet: I think the environmental benefits were present for marketing purposes. YMMV.

  23. 23
    cleek says:

    @Daddy-O:

    Where is the data suggesting these used cars are being dismantled and destroyed? Was that the original intent of the law? Did it demand the destruction of these cars instead of re-selling them?

    see Wiki.

    a traded-in car was required to be scrapped, after having the engine destroyed by running it with sodium silicate (which will solidify in the heat) instead of motor oil until it seized.

  24. 24
    Jewish Steel says:

    That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it

    Whoa, dude. Are you saying that money’s not, like, real?

    *exhaling, passes bong to you

    Some deep thinking you’ve revealed there, E.D.

  25. 25
    thefncrow says:

    @Daddy-O: Yep. Cash 4 Clunkers required that any cars traded in exceed certain standards for emissions, and anything traded in was to have the engine burned out.

    They didn’t mandate the outright destruction of the full car, just to render it inoperable. The remaining parts could then be salvaged as a supply of replacement parts.

    The whole idea, to begin with, was that the high-emission vehicles would be taken off the road, and that the cars bought to replace them would be low-emission vehicles. It would stimulate the auto industry, and a serious number of high-emission vehicles would be destroyed and taken out of circulation.

  26. 26
    Violet says:

    @PeakVT:
    Doesn’t mean there weren’t environmental benefits. See cleek’s list of vehicles above.

  27. 27
    catclub says:

    @Daddy-O:
    “Some New Cars Now Cheaper Than Used Cars”

    And that’s another thing. If used car prices are way up doesn’t that mean a transfer of wealth to those who held used cars – like the people unable to afford to buy new and get the CFC benefit. I.e. now it benefits (some of) the class of people
    that ED Kain is saying were losers in the first round?

  28. 28
    MeDrewNotYou says:

    @Jules: My first “cool” car was a Pontiac Sunfire. It was new, because my parents were doing pretty well at the tail of the Clinton years, but they were still pretty cheap. They aren’t the hippest thing going, but they look nice, are fun to drive, and they have a modern enough look. (Unlike my first car, a 1983 Buick Skyhawk with…A/C and power windows! I think that counts as luxury back in the day.)

  29. 29
    mattt says:

    Anything that raises the cost of driving contributes to higher density, and a more sustainable society over the long run.

    This particular effect of the C4C is also regressive – like a lot of taxes, fees, and programs wind up being – which is a reminder why we need a progressive income tax and tax on capital gains to balance things out.

    A national sales tax on vehicles (used and new) that phases in as price goes up and gas mileage goes down might not be a bad idea, either.

  30. 30
    Mnemosyne says:

    Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed, artificially inflating the cost of used cars by diminishing their supply and likewise artificially bolstering the demand for new, expensive cars.

    Actually, if my 1998 Toyota RAV-4 didn’t qualify as a trade-in for Cash for Clunkers, I’m pretty sure your ’99 CR-V wouldn’t have, either. I think you and Kuznicki have a strange idea of what the program consisted of since the aim was to get inefficient and polluting vehicles off the road, not just to prop up Toyota and Honda.

  31. 31
    gex says:

    So wait. Did we want to soften the landing in the auto industry or not? Did we want to prevent job losses? I get confused.

    Why care about the working poor now? Conservative economic policies over the last 30 years have moved much of the middle class into the working poor category and stagnated their wages as all the necessary items in life got more expensive.

    Look at the wealth distribution in this country. Upward mobility is decreasing. This is really the area where conservative/libertarian minds think the poor are getting screwed?

  32. 32
    cleek says:

    @cleek:
    i should add: those are the top ten traded-in vs sold (in order), according to the Wiki page for the program.

  33. 33
    TimmyB says:

    Duh. The fact is that any program that has the government pay a premium over current market value for good will increase the price of that good.

    But the whole program, which was a government subsidy to auto makers, was also geared to remover high pollution autos, and replace them with low pollution vehicles.

    The fact that there are less gross polluters on the market today is good for all of us. Somehow, I don’t think that critics of the program would have greater approvalof a program where the police confiscated high polluting vehicles at gun point.

  34. 34
    Jason Kuznicki says:

    @catclub:

    I certainly made similar arguments back then. The reason they are interesting once again is twofold.

    First, there’s now evidence of the chickens coming home to roost in the form of higher prices for used cars.

    Second, looking at the policy itself with hindsight shows a very different picture. It wasn’t that long ago that C4C was totally untouchable. No one would ever think that it was just broken-windows nonsense. But it was. I’m wondering if, with the passage of time, this might be clearer to see. I think it could be.

    As to C4C’s environmental effects, my understanding is that they were entirely trivial.

    If reducing greenhouse gasses and other pollutants was the real point of the program, then $3 billion of solar energy credits would have done much more good on balance — without destroying existing capital stock.

  35. 35
    Russ says:

    CFC has contibuted very little to the rise in used car/truck values, the drop from 17 million new cars and trucks and SUV’s being sold in a year to 9 million to 10.5 million is the culprit and along with people keeping their vehicles longer due to the economy has ceated something I have not seen ever! in the car biz [29 years for me]. I just today sold a Chevy truck that sold for about $23,000 b4 rebates in 2005 for $14,000 2day w/ 79,000 miles and that is $1,000 below NADA book value. I ‘m guessing that were things normal it would be priced around $10,000.

  36. 36
    Agoraphobic Kleptomaniac says:

    The requirements for being eligible were environmental, not economic. IIRC, No matter how old a car was, if it got above a certain MPG, it was ineligible.

    Not to mention that “wealth” as proposed by the original author doesn’t take into account the “wealth” of cleaner air and less use of fossil fuels. (Lets not get into the “it’s cleaner to run and old car than to manufacture a new car” debate, we’ve been there.)

    So while current used car prices are highER thanks to C4C, the market won’t be able to sustain that given the downturn in the economy. Newer cars are still aging, and the C4C program removed a bunch of Lemons off of the road which would have been more expensive to run and maintain.

    I mean, there were problems with C4C, but this post is pretty weak sauce on substance and support.

  37. 37
    Allan says:

    If we want to create jobs with tax dollars let’s at least get to work patching up our dilapidated infrastructure or investing in a new, better infrastructure of the future. We’ll leave fewer casualties in our wake.

    Have you read about this thing called the ARRA? It was in all the papers last year…

  38. 38
    Violet says:

    @thefncrow:

    The whole idea, to begin with, was that the high-emission vehicles would be taken off the road, and that the cars bought to replace them would be low-emission vehicles. It would stimulate the auto industry, and a serious number of high-emission vehicles would be destroyed and taken out of circulation.

    Stimulating the auto industry wasn’t a bad goal either. Since the government had taken over GM, we wanted to get our money back. The government helped out in a few ways, including C4C. And look, the auto industry is doing reasonably well and we’ve gotten the TARP money back (although there’s some discussion about where that money came from, etc.) But meanwhile people kept their jobs, got to stay in their homes, etc.

    There’s more to the story than just helping dealers to get cars off lots.

  39. 39
    PeakVT says:

    Missed the edit window.

    PS: I don’t deny there were some environmental benefits. They just weren’t the main goal of the program

  40. 40
    stuckinred says:

    Duh, just fucking duh.

  41. 41
    DanF says:

    @cleek: Then, unfortunately, it was an even bigger fail. More energy is consumed, and more toxins released, in the manufacturing of a car, then could ever be produced by the car in it’s life cycle.

    EDIT: Hmmm …. I may be wrong about this …

  42. 42
    Steve says:

    If we want to create jobs with tax dollars let’s at least get to work patching up our dilapidated infrastructure or investing in a new, better infrastructure of the future. We’ll leave fewer casualties in our wake.

    Destroying old infrastructure that is inefficient and expensive to maintain = Good

    Destroying old cars that are inefficient and expensive to maintain = Bad

    Hmm. Why do you want to replace all those old bridges? Don’t you realize you can’t create wealth by breaking windows?!? By the way, stimulus is about the velocity of money, not about creating wealth. Wealth gets created indirectly when people are out there doing stuff and spending money that supports other people doing stuff, as opposed to sitting on their duffs at home because the economy sucks.

    Personally I am sick of the Walmartization of political debate, where if you don’t support the lowest price as the greatest good then you hate the poor.

    It’s not an unalloyed good to get a cheap used car that gets terrible mileage and may cost a ton in maintenance down the road. It’s also not good to argue about the economic consequences of programs without taking externalities into account.

  43. 43

    BTW, there have always been new cars that are cheaper than used cars. A brand new Hyundai Accent is going to be cheaper than a used Hyundai Elantra, and both will be cheaper than a used Cadillac gas-guzzling SUV.

  44. 44

    Erik,

    Did you know ahead of time that this program would fail? Did you say so? Did you try to warn everybody that it would not work at all?

    You might have. I really don’t know. If you did, I’ll admit that somebody out there should have listened to you.

    If not, if you didn’t know how it would turn out, you are no smarter than the administration. In that case, STFU.

    Have a nice day.

    Linda

  45. 45
    Face says:

    Where’s your proof that the C4C program is responsible for the relative dearth of used cars, and not the fact that the economy sucks, credit is impossible to get, and its currently chic to look miserly? Seems to me all 3 of those reasons point towards an uptick in used car sales.

    Shorter: How do you know prices are up due to reduced supply, instead of increased demand?

  46. 46
    Brachiator says:

    Christ Almighty. There is nothing in the links provided that demonstrate that cash for clunkers is the main thing driving new car prices. One of the links notes

    Indeed, some new cars end up costing less than used ones. “It is worthwhile for a bargain-hunter to consider looking at heavily incentivized new cars, which in some cases are less expensive to buy than used cars given the dynamics of today’s marketplace.

    Hmm. Marketplace. New cars cost less than used cars. Perhaps because dealers have to push new car inventory to stay in business in a down economy. And perhaps people in tight circumstances hold onto their cars longer than before, keeping used car inventories tight.

    And then there is this:

    Plus, Edmunds Senior Editor Bill Visnick says 5-million fewer new cars were sold last year…which pares down the used car supply even more.

    If you are not selling new cars, you aren’t building up the inventory of used cars. Nothing at all to do with cash for clunkers. In fact, this suggests that cash for clunkers didn’t stimulate new car sales as much as hoped.

    Again, E.D. jumbles personal anecdotes about his own personal circumstance with a bizarre misreading of available data, throws in a dash of “it’s the gummints fault” and pops out a wrong-headed conclusion not supported by his ramblings.

  47. 47
    Guster says:

    @PeakVT: They were one of the top main goals. Stimulating the economy and increasing fuel efficiency:

    U.S. Transportation Secretary Ray LaHood today kicked off a buyer incentive program designed to help consumers purchase new fuel efficient vehicles and boost the economy at the same time. The Car Allowance Rebate System (CARS), commonly referred to as Cash for Clunkers, is a new federal program that gives buyers up to $4,500 towards a new, more environmentally-friendly vehicle when they trade-in their old gas guzzling cars or trucks.

    “With this program, we are giving the auto industry a shot in the arm and struggling consumers can get rid of their gas-guzzlers and buy a more reliable, fuel-efficient vehicle,” Secretary LaHood said. “This is good news for our economy, the environment and consumers’ pocketbooks.”

    pdf: http://www.cars.gov/files/offi.....ly27PR.pdf

    That’s not to say it was perfect. But if we want to create jobs with tax dollars let’s at least get to work patching up our inefficient automobiles or investing in a new, better automobiles of the future. We’ll leave fewer casualties in our wake.

    RIght?

    This reminds me of people freaking out because traditionally-grown produce isn’t necessarily healthier than chemically-grown produce. They think self-interest is the only possible justification for action.

  48. 48
    gex says:

    @Allan: Nope. See each and every item exists in a universe all by itself. Yes, a wide variety of actions were taken to stabilize the economy. And they worked in an interconnected fashion. But so long as you can look at one piece of it, make a talking point out of it (volcano monitoring?!?!), each and every bit of it can be made out to be ridiculous.

    It’s a lovely rhetorical device. Barbers licensing is ridiculous! C4C is ridiculous. The only idea that can’t be made to sound ridiculous is that tax cuts lead to greater revenue.

  49. 49
    David says:

    @Face:

    To go along with your statement, why would anyone not expect used cars to become more desirable in a prolonged recession? Seriously, we know new auto sales were hurting for quite a while, doesn’t it follow that more people are driving their used cars longer, rather than trading them in?

  50. 50
    Shygetz says:

    Wow, E.D., that was crap. Nowhere in this entire screed, yours or Jason’s, was the cost of operation figured into your back-of-the-toilet-paper calculations, which any idiot would know is just as important for any economic figuring regarding large equipment. Add in the external costs of car ownership not borne solely by the owner (e.g. pollution, direct and indirect public subsidies of oil, etc.) and you have A.) an incentive to scrap old, inefficient cars for new, efficient ones, and B.) a public interest for encouraging such actions. If you had weighed all of these competing interests with the value of the running “clunkers” and found the CFC program to be destroying wealth in the long term, we could have a nice discussion.

    But no, rather you tell a completely irrelevant personal story about your car which doesn’t even qualify for the program, and then magically spin it into a spurious wider lesson about subsidizing “acts of destruction” to help the wealthy, pretending that the only wealth that matters is that which is generated/destroyed today, and to hell with tomorrow. This is why shallow libertarian economics always comes up short…it rarely takes into account externalities, and E.D. fell for it (again). Sorry, buddy, but if we’re gonna help rescue the auto industry (and you didn’t make an argument here that we shouldn’t), I’d rather do it in a way that decreases the public’s share of external costs of operation.

  51. 51
    Xboxershorts says:

    Regardless of the cause behind the spike in used car prices, the destruction of hundreds of thousands of viable used cars was an insult to the hundreds of thousands of poor and working poor for whom the key to economic freedom would have been reliable transportation.

    Repurposing these mostly viable vehicles to the states for distribution, on a proven need basis, would have gone a long way towards helping people climb out of economic morass….

    Single working parents across the country got screwed. Again.

  52. 52
    mattt says:

    @DanF: I recall an article, i think in one of the libertarian rags, that compared the energy and pollution costs of replacing the gas guzzlers _prematurely_ under C4C, vs the fuel savings. The premature replacement took a big chunk out of the resource/emissions savings as I recall, but there was still a small net benefit. And of course the primary goal was to save the jobs in the auto industry.

    This is all from memory….

  53. 53
    DanF says:

    I was waaaay wrong (and happy to be so). It turns out that manufacturing energy – from raw materials to product – takes up about 10% of a car’s lifecycle energy consumption – or 73 Giga-Joules. Here is a good place to jump off on this for anyone that is interested:

    http://answers.google.com/answ.....?id=433981

  54. 54
    malraux says:

    Wouldn’t used cars also be in higher demand right now because of the bad economy? Used cars are substitute goods for new cars.

    That said, I would imagine that specifically SUVs would be hard hit by cash for clunkers, as that’s what the program got off the road. But an average of 11% increase overall looks like it could be anything.

    All that said, your analysis is stupid. Cash for clunkers gave people a greater value than the trade in of the vehicle. Everyone who purchased that vehicle is wealthier because of C4C. The people less wealthy are arguably people in the future who have to pay higher taxes.*

    *: Note, if the program was stimulative, even that is debatable.

  55. 55
    Ahasuerus says:

    I originally had a much longer post, but I see that the indefatigable BJ commentariat has beaten me to it. So I’ll just add this Snopes link as a future rebuttal to one of the other fraudulent arguments about the CARS program. And I’ll close by opining that Kuznicki does NOT make any good observations, he’s just babbling more of the intellectually dishonest contrarian crap that pollutes our national discourse. C’mon E.D. – I can appreciate a good contrarian argument that takes actual, you know, reality into account, but this lame-ass crap is a waste of everybody’s time.

  56. 56
    numbskull says:

    @DanF:

    Then, unfortunately, it was an even bigger fail. More energy is consumed, and more toxins released, in the manufacturing of a car, then could ever be produced by the car in it’s life cycle.
    EDIT: Hmmm …. I may be wrong about this …

    We both may be wrong. I used to think this, too, but one of my motorhead friends who has old sportscars and new econoboxes (and so it not prejudiced in either direction, I guess) and who works in the industry has shown me data that the worst of the worst, which C4C specifically targeted, were so bad that they fell outside the range of being “cleaner” to run than to make new. IIRC, the breakpoint was around 15 mpg. Replacing with anything that gets even 19 mpg is a “win” on this issue.

  57. 57
    j low says:

    I’ve generally been a defender of EDK, but right now I’m dying for him to comment on the fact that this whole post basically misses the point of the program.

  58. 58
    mikefromArlington says:

    OK. I come to this site for honest analysis.

    Someone is lying E.D. Kain.

    You said the following:

    “Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed, artificially inflating the cost of used cars by diminishing their supply and likewise artificially bolstering the demand for new, expensive cars.”

    Here is the list of eligible vehicles. Did you purposely lie to try and validate this story?

    http://www.edmunds.com/cash-fo.....icles.html

    Here is the official listing of what was traded in according to CARS.gov. It’s in the “Trade-In Vehicles xls” file hypertext link.

    http://www.cars.gov/carsreport/index.html

    I’ll give you an opportunity to redeem yourself.

    Another thing to note readers.

    The link the author provided to the highest rising value for a used vehicle is the Escalade. According to official reports, 62 Escalades were traded in.

    Correlation doesn’t always equal causation.

  59. 59
    Scott de B. says:

    That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods.

    That’s good to know. I guess that means no auto manufacturer can ever go bankrupt, because they can always make more cars.

  60. 60
    BH says:

    Correlation does not equal causation; there are a number of factors that can contribute to the reduced supply of used cars. A depressed economy and higher unemployment means people hold onto their existing used cars longer. Tight credit and reduced home wealth also contributed to the slow down in new car sales, which means fewer trade-ins. C4C was one element of the supposed shortage, but there are numerous other factors which may be making a much larger contribution to this situation.

  61. 61
    mikefromArlington says:

    You said the following:

    “Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed, artificially inflating the cost of used cars by diminishing their supply and likewise artificially bolstering the demand for new, expensive cars.”

    http://www.cars.gov/carsreport/index.html

    CRV’s aren’t on that list.

    :(

  62. 62
    p.a. says:

    I’d like to see some analysis on the increasing cost of used vehicles. Is used car demand up as the crap economy keeps people from buying new vehicles? Is supply reduced as people hold onto clunkers longer? How much of the supply reduction is based on the previous 2 points and how much on CFC? Is more $$$ being spent on repairs to keep old cars on the road now than before the crash? How bad must it get before we become a Cuba-like vehicle museum? (ok, last point is snark but the others aren’t.)

  63. 63
    baldheadeddork says:

    Beyond the factual error already noted, this is really bad economic analysis and a misunderstanding of the car market, too.

    C4C was clearly an economic success. It led to a growth of employment in the auto manufacturing industry for the first time in more than a decade. Thousands of people kept their jobs or were hired because of increased new car sales that began with C4C. It pulled some sales forward, but it had a long-lasting effect that is still evident a year later if you look at the pre and post C4C annual sales projections and results.

    Contrary to the post you cite, C4C had a minimal effect on the used car market today. As noted, C4C only applied to cars that got poor fuel economy, but there were also price restrictions. Your car had to be worth less than $4500 to qualify for C4C. If your car was worth $4K, the value of C4C to you was only $500. This promoted the trade in of the oldest and least valuable vehicles that qualified, cars that were most likely headed to the crusher whenever the current owner was done with it. Also, the requirement that the trade be paid off and owned, registered and insured for a year greatly restricted the pool of eligible vehicles. The most common participants in C4C was a family who traded off an old Explorer that had been handed down to a teenage child. It did not come close to depleting the pool of affordable cars for poor people to drive, in fact it barely made a dent in it.

    I also don’t think you understand how data is collected on used car prices. It’s measured at wholesaler auctions, which focus on newer trade-ins, lease returns and rental cars. The sub $4500 market is very underrepresented at auctions because they make up a disproportionately small part of the trade-in market. Most car sales under $5000 are private party, and those numbers don’t show up in this data.

    Used car prices are rising because consumers who have to replace their existing vehicle are nervous about the economy and are buying used instead of new. That the number is rising to a point where it’s less expensive in some cases to buy a new car, as the Edmund’s story notes, is further evidence that this is not a phenomenon of the car market for the working poor.

  64. 64
    Xboxershorts says:

    @j low:

    …”The point of the program” was very shortsighted and too narrow in scope.

  65. 65
    Belafon (formerly anonevent) says:

    Money retains its value as long as there are goods to be traded for it

    Actually, money retains its wealth as long as enough people believe that it is worth a particular amount, which might be measured against a particular good or service. Like the confederate money shown yesterday, they are worth nothing now because no one believes they are worth anything.

    That’s why I tend to laugh at people who want to go back to trading in gold. Yeah, because gold is not man made it might have more people believing its “valuable” but if enough people stop accepting it, it just becomes another rock.

  66. 66
    ChrisNYC says:

    You know you’re in trouble when comments to your post begin with, “Christ Almighty” and “Duh”.

  67. 67
    j low says:

    @Xboxershorts: True. And?… EDK still missed the boat.

  68. 68
    Belafon (formerly anonevent) says:

    @baldheadeddork: Thanks.

  69. 69
    Tim I says:

    Front Page FAIL!

    Is this all you got – recycled right-wing talking points from last year?

    C4C helped to save – the now-thriving – US auto industry and reduced tailpipe emissions.

    What a dumb idea.

  70. 70
    WereBear says:

    I got a leftover 2010 Ford Focus just a month ago.

    With a three year total warranty, the ability to spread out my payments into a monthly bite we could afford, and the MONEY the dealership gave us to buy it; it was a better deal than a dicey used car of unknown maintenance history. Which has burned us three times in the past ten years.

    We now have great gas mileage, just enough car for the two of us and occasional dinner partners, and we bought American!

    I find this post to posit from wrong facts and the pivot in all the wrong directions; the car dealerships told me the cost of used vehicles has gone up due to increased demand for them, and no one is interested in vehicles who get low gas mileage. Most people want newer, lower miles, higher gas efficient… just what I was looking for.

    Free market, dudes!

  71. 71
    J says:

    Longtime reader/lurker, but this is a truly pathetic post. Not a good addition to the blog. The intarwebz already has enough dim bulbs willfully or carelessly misrepresenting basic facts, and we don’t need more here.

    It’s really mind-boggling to read this many words on the cash-for-clunkers program and not see a single word about the environment.

  72. 72
    DanF says:

    @numbskull: Indeed your motorhead friend is correct, and I was wrong. I posted a Google answer about this up thread that’s good reading on the topic.

  73. 73
    numbskull says:

    @baldheadeddork: Kain, you’ve been schooled on this topic. I mean “schooled” in a good way here.

    Care to comment? Does baldheadeddork’s rebuttal change your take on this? If not, why not?

  74. 74
    Davis X. Machina says:

    I’ve generally been a defender of EDK, but right now I’m dying for him to comment on the fact that this whole post basically misses the point of the program.

    But it doesn’t miss the point of his program — which was the point.

  75. 75
    me says:

    @Belafon (formerly anonevent): Especially since gold, unlike many other valuable metals like platinum, is mostly useless.

  76. 76
    eyepaddle says:

    Here’s a REAAALLLLLYYYY simple hypothesis as to why the supply of used cars may be down: people are just hanging on the their old cars longer. I paid off my Cavalier a couple of years ago and plan on running it for a couple more.

    I’d think that probably outweighs the effects of increased demand for used cars, and the cut in supply from C4C. Hell, it’s what I’d expect to happen in a situation with a roughly constant number of vehicles on the road when the new car sales go from something like 14 million to 9 million per year. There’s 5 million fewer “new” used cars per year right there–does anybody know how many cars were junked because of C4C?

    Yes, I suppose I could dig around, but it would be SWEET if somebody else could do it for me. ;)

  77. 77
    MikeJ says:

    @baldheadeddork: Pfft. You can prove anything with facts.

  78. 78
    Agoraphobic Kleptomaniac says:

    Also, i’m fairly confused on who these “wealthy” people are who owned a really old inefficient car and gamed the system. Seriously, i’d like to see some data to support this. I mean, we’re probably edging on the higher end of “middle class” of people who did C4C, but who makes over +$250,000/year drives a car that would have qualified? on the other hand, I’m right at the median wage, and if I would have had a crappy little car (with poor mpg, my 91 civic didn’t qualify), I would have bought a new car with C4C.

  79. 79
    numbskull says:

    @DanF: Yep, I must’ve been composing when you posted. I guess it’s one of the few times when the obvious is correct (in the long run, anyway).

  80. 80
    jl says:

    To amplify one commenter above, how does recession affect used care supply and demand? This post and the links seem to assume that all of the price increase was due to cash for clunkers. But the new article link in the League post mentions the economy and not CFC for the price rise.

    About 700 K used vehicles went into CFC. About 12 million cars are scrapped and between 19 million and 36 million used cars sold each year (depending on which stats you believe) out of a stock of about 200 million, including both cars and light trucks.

    How likely that CFC was a greater factor than recession, given those numbers.

    I am not a fan of CFC. The program could have been much better designed and achieved it goals better. But that is no excuse for speculative bashing.

  81. 81
    KG says:

    To me, cash for clunkers was just the other side of the coin of the Bush Administration’s tax cut for big vehicles in the early part of the last decade. As I recall, there was a decent tax break if you bought a big vehicle (which led to all the giant SUVs on the road). This was just the other side of the policy, here’s a tax break/credit for buying a more fuel efficient car. It helps environmentally and it helps economically, at least in theory. Personally, I think both policies were dumb to begin with because I don’t like tax policy being used to “encourage” people to act a certain way. But they were also both so low on my list of priorities that I really couldn’t do much more than shrug my shoulders about them.

  82. 82
    alhutch says:

    I think ED is somewhat confused about how the car market works and C4C’s intent.

    The C4C program was supposed to take inefficient cars off the road and replace them with more efficient ones, assisting the auto industry at a dire time.

    Poor gas mileage was a critical component of cars on the C4C “acceptable” list. You got more money ($3.5k versus $2.5k) for a car that had a greater spread in fuel economy improvement over it’s replacement.

    My neighbor across the street C4C’d his 90’s Ford Explorer for a new CRV. C4C moved him to make a purchase right then and that purchase got better mileage than the car it replaced. That was the intent of the program.

    Used car prices are up now because of pent up demand, not the relatively small numbers of C4C cars taken out of the huge car ecosystem of the US. ’09 was a terrible sales year and many people sat on their hands waiting for things to improve. Those folks are buying now.

    Can you honestly argue that removing something like 690,114 cars (per Wiki) from an overall total of around 246 million (total US fleet) even matters? Even if you only consider the 10 million new cars sold last year (which still doesn’t capture used car & private sales), that 690k number is still dwarfed.

    Jason’s first provided link shows that 5 million fewer new cars were sold last year (not able to now be used cars). How does 690k compare to 5 million? Plus, look at the cars on the list illustrating the jump:

    Used Cadillac Escalades are almost 36% more.
    Chevy Suburbans jumped 34% in price.
    Dodge Grand Caravans are also seeing a 34% increase.
    BMW X5 is 33% higher.
    An Acura MDX will run you 29% more.

    None of those cars are on the the shopping list of folks you say are hurt by this program.

    Maybe one can argue that it artificially removed cars priced under $3.5k (or $2.5k in most instances), but you didn’t. Again, the number of cars removed is too small to really matter.

  83. 83
    Suffern Ace says:

    I’m thinking that based on the types of clunkers that were eligible for trade in, these were probabl 1) cars that had already been bought used once before and/or 2) owned by the frugal. Shouldn’t we reward the frugal?

  84. 84
    Allan says:

    @gex: I keep forgetting that our laws of phsyics don’t apply in the pristine free-market vistas of Glibertarianland, which I hear greatly resembles the graphic design of Tron.

  85. 85
    jl says:

    And breaking windows was a silly and inflammatory analogy. And Bastiat? Can you explain how Bastiat applies to this topic?

  86. 86
    mattt says:

    @me: Actually gold is very useful, and would be used more in industry if it were cheaper and more plentiful. It’s the best electrical conductor you can get, is useful for shielding vs radiation, and has other applications.

    There’s just a big difference between the industrial value and the market price, which is driven by investment value more than is the case for some other metals with industrial application (eg copper).

    Sorry to go OT but I think gold is cool stuff.

  87. 87
    malraux says:

    @alhutch: The one market I’ve heard that was negatively affected by C4C was the demolition derby group. The government pulled all the cars out that are the prime selection for such things.

    But yeah, I’m not sure how the sub $5k car market compares with the rest of the market.

  88. 88
    Malron says:

    This premise is patently absurd. Poor people don’t need cars, nor do we need the increase in greenhouse gases we’d get from more cars on the road. What we need is better public transportation to reduce everyone’s reliance on cars, particularly in the already congested urban areas.

  89. 89
    Pangloss says:

    Here we go again with one of the favorite GOP talking points of the season, that the government “picking winners and losers” is one of the worst things possible.

    This is why we don’t have a coherent energy policy, manufacturing is leaving the country, and China is growing like mad— because everyone else in the world DOES pick winners and losers, and even the GOP loves it when we pick the particular winners and losers they like. Ethanol? Ag subsidies? Wars to keep gas prices low? Tax credits for mortgage interest?

    It’s all “picking winners and losers.” The problem is we don’t do it enough.

  90. 90
    gex says:

    @j low: That’s the secret to the success of libertarianism. There are a handful of really good observations that you can agree with. But they want the entire world to fit the same mold, and thus will eventually say something that makes you wonder WTF.

  91. 91
    malraux says:

    Also, given that the top vehicle traded in was a ford explorer that was right in the price range for teens, I feel somewhat more wealthy by not having ridiculously dangerous vehicles out there being driven by the worst drivers.

  92. 92
    Brachiator says:

    And one more thing.

    I always wonder why people who dump on cash for clunkers as a ridiculous government program are so silent about the positive impact of the 2009 increased standard deduction for sales tax paid on a new vehicle (the 2009 IRS Schedule L)?

    This didn’t require that a car be traded in, was not limited to the purchase of a single vehicle, and tended to give a higher benefit to low and middle income taxpayers than to more affluent taxpayers who itemized their deductions.

  93. 93
    Zifnab says:

    This is a fairly obvious transfer of wealth from the poor and working class to the middle and upper class.

    Um… what about the Big 3? A sudden spike in demand for new cars did a lot to help stabilize the American auto industry. Now, I know most of the union labor working those automotive jobs aren’t desperately impoverished street urchins, but I wouldn’t exactly put them outside the working class.

    Are we so caught up in the needs of the used car purchaser that we can’t recognize the value of maintaining the US Automotive industry?

    Whatever stimulative effect it may have had, it was also an act of destruction and a temporary fix for car dealers and automakers at the expense of low-income consumers. I’m all for stimulus, but let’s keep it productive. Let’s build things with our stimulus dollars, not destroy them.

    Way back in the 50s and 60s, industry execs started coming around to the idea of planned obsolecence – the idea that products need to be disposed of if an industry wants to grow using it’s existing market. American cars were designed to start falling apart inside 100,000 miles. Things like refrigerators and microwaves came with pieces specifically crafted to break from repeated use. You saw it then and you can see it today, particularly in the computer industry, where gadgets can become completely useless for a variety of software and hardware reasons, after only a few years.

    The act of destruction is a fundamental faucet of the modern economy. In order to sell people more new stuff, we have to destroy their old stuff. Otherwise, you’ll be wearing the same shirts, cooking out of the same pots, sitting at the same desks, and driving the same cars that your grandparents used sixty years ago and all those industries will be virtually defunct.

    Certainly, we can talk about the merits of recycling and reducing our amount of waste production. But I don’t think you can argue, with a straight face, that the act of destruction is anathema to the functioning of the current economy.

  94. 94
    Tax Analyst says:

    Otherwise, you’ll be wearing the same shirts, cooking out of the same pots, sitting at the same desks…

    Why do I suddenly feel sheepish about wearing a dress shirt that I bought in 1993 when I went to work for H&R Block?

  95. 95
    Keith G says:

    @baldheadeddork:

    Wow. A detailed analysis. Very enlightening.

    E.D., you have been repeatedly schooled in this thread for making rather sophomoric mistakes.

    Maybe you should limit your commentary to brownie recipes.

  96. 96
    Aries Moon says:

    My hubby is a machinist (a producer of goods!!) working for a local machine shop (small business!!) that does about 20% of their work for the automotive industry and I’ve got to say that I am starting to get mighty enraged whenever I hear what a failure Cash for Clunkers was… because it wasn’t. In this case it saved a shop from closing its doors and it saved about 100 decently paying jobs for some decent hardworking people. C for C provided the bridge his company needed to get through a very freaky economic time and it did the same for countless others.

    I’m so tired of hearing all the whining about how “x” program or “y” program didn’t work 100% superfantasticflawlessly for every single soul affected by this great.big.mess. I’m terribly sorry there weren’t enough green infrastructure shovel ready jobs to implement right there in the middle of the crisis to please you. Whether or not the stimulus was big enough to sustain growth (I doubt it), you can’t say cash for clunkers didn’t plug the hole it was meant to plug.

    Argh.

  97. 97
    calling all toasters says:

    Shorter Kuznicki: when something old and beat-to-shit is replaced with something new and efficient the economy suffers, because the old piece of crap was wealth.

    Libertarians is teh smart.

  98. 98
    mario says:

    damn.
    what a smackdown this thread is.

    ranks up there with the great Juan Cole/Goldberg tussle of ought 5.

  99. 99
    Slowbama says:

    So the same folks who keep telling me that Glenn Greenwald is the antichrist don’t even know the reason why Cash for Clunkers demolished cars? Jeez.

  100. 100
    birthmarker says:

    @KG: Yes, business owners were allowed to expense vehicles ABOVE 6000 pounds!

    However, when it comes to vehicles purchased utilizing the Section 179 break, legislators took back some of the benefit as it related to large sport utility vehicles. When the limit was originally increased, business owners were allowed to select for company use one of several light-truck models (which included many luxury SUVs) weighing more than 6,000 pounds fully loaded and write off most, if not all, of the costs on their tax returns. That changed on Oct. 22, 2004, when the American Jobs Creation Act became law; now only company vehicles weighing 14,000 or more are eligible for the larger deduction amount.

    Who do you think lobbied for that one!!

    I’m not much of a linker, but this is from bankrate.com.

    We know people who bought SUVs and wrote off like $40,000 in one year.

  101. 101
    baldheadeddork says:

    @Aries Moon:

    You might not get a lot of replies because you came in late to the thread and five or six new posts have been made since, but I just wanted to let you know that at least one person read it and said “Amen.”

    I’ll be damned if I can think of another industry as vilified by both the far right and the far left – and both sides are full of shit at least 90% of the time.

  102. 102
    Aries Moon says:

    @baldheadeddork: Thank you. :-)

  103. 103
    giantslor says:

    “Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed”

    That would be pretty impossible, since trade-in vehicles couldn’t get more than a combined 18 mpg. Your ’99 CRV got 21 mpg.

  104. 104
    giantslor says:

    @baldheadeddork:

    Hey, it’s awesome to see you on here because I saw your excellent comments on this site a year ago:

    http://www.thetruthaboutcars.c.....-clunkers/

    After I read this post, I re-found that site and re-read your comments to prepare for posting here. It was a big surprise to see you had already found this post! Keep up the good work.

  105. 105
    baldheadeddork says:

    @giantslor:

    Wow…I don’t know what to say. I can’t believe you remembered something I wrote over a year ago. That is really cool. Thanks.

    I stopped posting at TTAC last year because of the way they let Bertel run wild with the ban hammer when someone calls him on his bullshit fine, high-quality reporting. (For the uninitiated, TTAC has a user policy that prohibits criticizing the front page writers, even when they’re caught making up shit. For being a bunch of rough, tough libertarians, their fee fee’s get hurt very easily.)

    If you see John Horner over there tell him I said Hi. He knows his stuff, too.

  106. 106
    Chris says:

    Most have replied about the C4C program itself, a few touched on this other thing but I am going to say somewhat more. I realize you are quoting another guy, but this is kind of a mess:

    That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it.

    You (and he) are right to distinguish between “money” and “wealth”, but you (and he) are largely wrong about how money retains its value. We have to go back to the very definition of money to see what is wrong here.

    Money is, specifically, “anything used as a medium of exchange”. As such, it’s trivially true that without items to “exchange”, the “medium” itself becomes useless. But there are always things to exchange: even if all goods (including currency itself) were to mysteriously vanish overnight (after, perhaps, “Goddidit”), we would still have services. You could barter one service for another, or you could re-invent money.

    It’s worth distinguishing between “currency”, which these days is generally paper money and/or coins, from “money”, which is more abstract. A bank account containing 500 bucks, with check-writing privileges, is not quite the same thing as 500 one-dollar-bills. They are mostly interchangeable but they involve different mechanisms and need different levels of trust. Trust, however, turns out to be the key to making “money” (of any sort, whether currency or credit) work.

    The reason I will take ten bucks from you for some particular good(s) or service(s), or you will take ten from me, is that we “know” (i.e., believe, with plenty of evidence to back us up) that Alice will take it too. She takes it because Bob at the grocery store will. Bob takes it because he knows that Charles, at the hardware store, will take it. Charles takes it because he knows Debbie will, and she takes it because Ernie will, who takes it because Fred will because Gina will because Herbert will because Irene will, and so on down the line.

    This all seems pretty obvious, but if you look at it closely, it really comes down to a kind of faith. We take greenbacks (here in the US) because we have faith—with years of experience that backs it up, admittedly—that everyone else takes it. It’s a kind of mass delusion, that these specially-printed bits of paper have intrinsic value, that is true because we all believe it to be true. You can test this by offering someone foreign currency, or hinting that any particular greenback might be counterfeit. They may or may not take it, depending on their ability to judge the “genuine-ness” of the bill or coin, and whether they believe they can exchange it for something of value to them later. The more familiar they are with the other currency, or the means of testing for counterfeit, the more likely they will test it and/or take it: they can apply tests to shore up their belief in the exchange-value of the currency.

    When it comes to the numeric value of a particular currency that it takes to exchange for a particular good or service, we take our cues from “what everyone else is paying”. In the US, there’s generally not as much bargaining / haggling as in some other countries (it mostly happens here over cars and houses), but there is still a lot of social interaction involved in valuing things. We have not had a Weimar Republic or Zimbabwe style runaway inflation here (ever) but we have had fairly steep inflation (1970s/80s) and deflation (1930s), and in those cases, one way to look at the value of money—and its increase (deflation) or decrease (inflation) in value—lies in the relative faith we have in future purchasing power of any given quantity of money. Money begins to lose value not when goods are destroyed, but rather when we, collectively, believe that the value of a dollar tomorrow is going to be substantially lower than the value of a dollar today.

    You need to look not at the amount of goods and/or services available for purchase, but rather at the faith (or lack thereof) that people have that, tomorrow or a year from now, the same dollars they have now—or will accumulate by then—will buy them about as much as it does today. If they believe that it will take twice as many dollars next year, they’ll rush out and buy now (housing bubble anyone?). If they believe that it will take half as many dollars next year, they will wait as long as they can stand it.

  107. 107
    giantslor says:

    There seems to be a lot of misinformation at this Wikipedia article:

    http://en.wikipedia.org/wiki/C.....ate_System

    It’s crying out for knowledgeable editors!

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