A Philosopher's Blog

Cash for Clunkers

Posted in Business, Politics by Michael LaBossiere on August 27, 2009
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Opponents of the cash for clunkers plan often criticized it because it would allow folks to buy either foreign or domestic cars. The worry was that American tax dollars would go to helping foreign car companies rather than US companies. This fear turned out to be true.

People who buy cars in the US normally buy American 63% of the time. Those cashing in on the clunker plan did so only 53% of the time. I suspect that since the plan is intended for folks to trade from low mileage cars to higher mileage ones, folks would tend to buy foreign because these cars generally seem to do better in mileage than US cars.

While critics are right to be concerned that our tax dollars are, in some cases, helping out foreign companies it is also important to keep in mind the following facts. First, these cars are purchased in the US from American dealers (unless people are doing direct buys from, for example, Japan) and this helps out the US economy. Second, many “foreign” cars are actually made in the US, thus also helping out the US economy. Third, helping out foreign car companies will help the foreign economies and this can help contribute a tiny bit to getting the world economy back in order, thus helping the US.

Of course, there are good reasons to believe that the program should have been for US cars only. However, since many foreign companies have plants in the US and have plenty of clout, that would have been an unlikely course of action.

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8 Responses

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  1. biomass2 said, on August 27, 2009 at 8:52 pm

    The Toyota and Honda websites point out that, between them, they directly employ over 60k Americans in manufacturing. Also, approximately 200k are employed at their dealerships. And many, many, many thousands are employed at parts suppliers across the country.

    It may be hard to convince American citizens in Decherd, TN and Stanfield, AZ and Columbus, IN and San Antonio,TX and Lincoln, AL and Tallapoosa, GA where a few of the Honda, Toyota, and Nissan operations are located that these are “furrin” cars in anything but name.

    I’ve owned a Honda and/or a Toyota since 1984. I simply couldn’t depend on the “domestic” models I owned from ’64 to ’84 to provide reliable transportation over the mountain to and from work. I looked at repair and reliability records in Consumer Reports, bought a Toyota Corolla, and I haven’t looked back since.

  2. T. J. Babson said, on August 27, 2009 at 9:55 pm

    John Stossel:

    http://blogs.abcnews.com/johnstossel/2009/08/cash-for-clunkers.html

    Of course, destroying assets does not help an economy. The politicians who defend Cash for Clunkers remind me of the silly people who said that the rebuilding that would come after the destruction of Hurricane Katrina would “stimulate” the economy. What they forget is that the money for rebuilding —and the cash-for-clunker money—is forcibly taken from people who would have used that money to create other things.

    Brad Smith asks:
    Are the people running the government the most economically illiterate bunch since FDR ruled the roost?

    I doubt that. Most power-hungry lawyers and others who run for office to rule over others—not to mention the media who cheer them on—are economically illiterate. I don’t think that this bunch is better or worse than their predecessors.

    • Michael LaBossiere said, on August 29, 2009 at 10:45 am

      Good point. Rebuilding does stimulate the economy of the folks who are doing the rebuilding (and the folks who get their beaks wet as part of this process). But, as you noted, the money someone spends rebuilding is money that would have been used for something else. It is a bit like saying that getting surgery stimulates the economy.

      • biomass2 said, on August 29, 2009 at 9:41 pm

        “. . .the money for rebuilding —and the cash-for-clunker money—is forcibly taken from people who would have used that money to create other things.”

        Very tricky word, the word “would” is.It’s not a weasel word, but it becomes one when used by weasels.In this instance it’s used to declare that, without a doubt, that money [all of it, not just some of it--read the sentence] “taken from people who used the money to create other things.” It’s like we’ve been magically transported to a world where everyone’s an entrepreneur, because there’s no mention whatsoever of the non-creators (most of us), whose money is also “taken.”

        But Stossel and the rest know and are too weasly to admit that this is not the only possibility. Another distinct possibility: The consumer/non creator save! Yep.Maybe the consumer simply won’t consume (spend money)not even with his trusty credit card, and the money won’t be used to create a da*^ thing.
        So we know where Stossel et al. come down on the saving vs. consumer spending debate. Here’s the other side.

        http://www.newsweek.com/id/189232

        “. . .destroying assets does not help an economy.”
        Doesn’t that depend on whether they’re good or bad assets?
        ———–

        Michael,

        “. . .money that would have been used for something else.” Like savings?

        “It is a bit like saying that getting surgery stimulates the economy.”

        Let me take a shot at the simile.

        Money spent on rebuilding stimulates the economy of the people doing the rebuilding. That money ‘could have been’ spent elsewhere. Money spent on surgery stimulates the economy of the surgeon, the hospital, the nurses, equipment suppliers, etc. but that money spent elsewhere. When I’m getting a heart valve replaced, I’ll be perfectly happy to stimulate the surgeon’s, the hospital’s, the nurse’s, the suppliers’ economies. Or let me put it another way
        . . .and take the analogy another step: If I have a systemic problem, a small part of which involves aortic valve stenosis, and money or other means used to replace the valve may not only render the valve more useful but also help the system survive, why in the name of all that’s holy should I care that the money “be used for something else?
        Now plug in “The United States” for all first person pronouns, “super-sluggish market” for “aortic valve stenosis”, “auto industry” for “valve” and “US economy and government” for “system” , and “deity of your choice” for “all that’s holy” in the previous sentence.

  3. Patrick Sperry said, on August 28, 2009 at 10:14 am

    This is Broken Window Economics at it’s finest. Just as T.J. points out about the Katrina fiasco.

    Not to mention that every single one of these “loans” were underwritten by you and me…

    • Michael LaBossiere said, on August 29, 2009 at 10:43 am

      True. As always, the folks in Congress are very generous with other folks’ money. It would make more sense to lower taxes a bit for everyone and thus avoid the cost of collecting and distributing the cash for clunkers. But, some folks claim that government spending generates more jobs than tax cuts. Of course, these are the folks who are interested in spending tax money.

  4. biomass2 said, on August 30, 2009 at 8:09 am

    Drat.

    Please accept the following changes to my second entry above.

    Para. 2 change “taken from people who used the money to create other things.”
    to
    “is forcibly taken from people who would have used that money to create other things.”

    Changes in next to last paragraph:

    but that money spent elsewhere.
    to
    but that money could have been spent elsewhere.

    AND, finally

    should I care that the money “be used for something else?”
    to
    should I care that the money could have been “used for something else.”

  5. kernunos said, on September 3, 2009 at 6:05 pm

    How about a different angle? How about the repair shops that are getting hurt by less repair jobs on cars that may have needed repairs? How about the lack of parts in salvage yards because these cars are destroyed? The parts cannot be recycled? How about how this is actually hurting the poor because these cars being traded in are cars they could afford to buy but are being destroyed? How about how this is not helping the poor because they do not have the credit to enjoy this program anyway? So the poor keep running their clunkers and are more expensive to repair because there are less parts to repair them? Then the repair rates increase for them because there are more shops closing because of the lack of work. Supply and demand mutated by government programs. It reminds me of introducing a species to a eco-system that ends up damaging the eco-system more than it helps. Can you say yellow perch or pickerel?


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