I know of only 1 person who had a car worth less than $4500 that was looking for a new fuel-efficient car and used this deal: My dad. He traded in a 1998 Jeep Grand Cherokee (16mpg) towards a 2009 Subaru Forester (26mpg). He bought that Jeep at an auction with 60K miles and it ended up with 160K miles. It was a great car for our winters, but expensive to drive and at the end of its life, so he also has a mazda 626 that he drives the rest of the year, which he is now selling. So, he replaced 2 cars with one.
They are not crushing the old cars, they are replacing the oil with epoxy and turning over the engine to seize it. That way they can sell the remains to a junkyard, who will resell the rest of the parts. He actually got another couple hundred dollars for that. And most of that car will be recycled for parts, the rest recycled for scrap metal. Therefore I think the program took a lot of cars off the road that were already near to the end of their usable life, and they will be recycled, and replaced with a car with significantly better gas mileage, so really not much waste from this part.
Ford posted a profit for the first time last quarter, and the rest of the American car companies are out of bankruptcy. Ford did the best because they made the safest financial decisions, so when this bailout money hit the streets buyers leaned towards Ford. Not towards GM, who made crazy management decisions. Although, both benefited, and now the recession is drawing to a close. So I think the bailout money was spent wisely in terms of the corporations.
This bailout did nothing for the people who constantly trade in their 3 year old large SUV or truck for new ones, and create so much consumption-based waste. It helped the people who were trying to hold on to old cars to get maximum life from them, but were close to the end. So I think this bailout money was spent wisely in terms of the consumers.
To summarize, what were the net costs and benefits? We spent 3 billion dollars of taxpayer money and consumed a whole bunch more cars. That is the bad news. The good news is that this has been one of the programs that helped turn the economy around, put people to work, and did it smartly in terms of environmental benefit.
Were the costs worth the benefit?
Are there other costs or benefits I am not accounting for?
I have a few thoughts about the program…though, as I started with a cynical view of it, I paid most attention to the news that was unfavorable.
ReplyDeleteLacking TV, or a politically interested group of people to talk with, most of the news I heard about the program came from NPR. In one interview they were present for the execution of a car. The one being killed was the sort that seems similar to your dad’s experience. But the shop owners spoke of the dozens of other very usable cars that were also being killed and how depressing they found it. He said there was only one guy in his shop that was willing to execute the cars.
Regarding the recycling…there was also a story about the salvage yard folks. One of them mentioned that the engine was the most valuable part of the car. It is good the cars are being recycled, but that is not a new thing. It is an example of the inevitability of sustainability. As it is cheaper to recycle these pieces than make new, this process has been working for a while. Sorta like the recycled paper that is not post-consumer…the envelope trimmings that have always been recycled.
I heard an economist say (on npr) that he didn’t think there would really be any long-term economic benefit from the program because it was likely just encouraging people to buy cars en mass in August, rather than in a trickle over the rest of the year. Which brings me to my major problem…
This sort of consumption-focused growth economy is not sustainable. Fundamentally, an economy – all money – is just a measure of available resources. ALL of our economic indicators are based on growth, so if we aren’t growing, we think things are bad. How is that possibly sustainable? We will run out of resources, just as civilizations have in the past. We can either find ways to step back from over-rampant consumerism slowly, or we can keep consuming until we crash. This program just exacerbates our “borrowing” from the future to maintain our present. I would gripe about how uncool I think it is that my work and my money paid for your dad’s new car, but it really isn’t my money at this point. It is your kid’s or your grandkid’s more likely.
Links:
ReplyDeleteThe Shaky Economics
Salvage yards
My comment is too long. Breaking it in to 2 parts.
ReplyDeleteDid your father take out a loan to buy the new Subaru?
Since sustainability is inevitable, and all we are doing is pulling forward demand, we're going to have to pay a very high cost indeed. The more we pull forward, the harder it eventually crashes. The car companies may appear to be out of bankruptcy for the time being, but this is a process where the terms were dictated by the government. Standard bankruptcy rules did not seem to apply to the car companies. Bondholders were screwed, and the confidence of potential investors was eroded.
We have policies, including cash for clunkers, that are going all-in, trying to support an unsustainable level of demand. The government is borrowing money at an annualized rate of 5 trillion dollars per year. Tax receipts are in the toilet. Our economy is in arguably MUCH worse shape than it was 6 months ago.
Cash for clunkers is boosting confidence of consumers. That is exactly what it is supposed to do, and this is a very bad thing. Such a huge portion of the growth of the past 30 years was pulled forward credit driven demand. That is tapped out. Consumers have no more money, and their credit limits have been extended to the maximum amount that the market can tolerate. So many people are extended to the limit. The crash of last year represented a tipping point in our carrying capacity for debt burden. It was a warning that it was time to take our hits and shift to a sustainable economic model - or else. Encouraging people to take out new car loans is absolutely essential to the continuation of our failed economy, but it is in fact one of the worst things we can do if we want a robust recovery. If we really want to keep this up, we are literally at a point where we need an exponentially increasing debt burden just to maintain a holding pattern.
We are auctioning off 207 billion dollars in debt next week. Last week we auctioned off 250 billion dollars (makes 3 billion for clunkers seem like small potatoes!). This is approaching 40% of our GDP annually. If the consumer is not willing or able to borrow, the government will do it on our behalf.
This is small potatoes still. Our debt obligations and liabilities in this country exceed the value of all gold that has been mined from the earth throughout all of history. All to pay for our bread and circus. Social security alone has 4.3 Trillion in debt that the government will need to find a way to pay for over the next few years if old people want to keep getting checks that won't bounce.
part 2
ReplyDeleteI bet if people's tax bills really reflected the true cost of our government and liabilities, we'd have drastically different popular opinions on a lot of things. That time is coming to us very quickly. These costs MUST be born by all of us through a truly massive increase in taxes (which no one will like), or we must default on our debt and go bankrupt as a country (bad - China will be hopping mad - they have nukes), or we devalue the dollar and head for massive inflation, which amounts to a default in the eyes of our creditors anyways as we are essentially stealing money from them (and our fellow citizens).
Since the second and third options are not a good idea, and option number 1 is political suicide, we just look the other way. We assume that we can return to robust economic growth, have 20% year over year increases in housing values etc. We literally NEED an ever inflating bubble. Clunkers, home buying rebates, etc - all trying to start blowing the next spending bubble, which HAS to be HUGE compared to the stock market and housing bubbles. This is all well and good for as long we can have a cheap and abundant source of energy to fuel our economic growth, but we don't. The IEA estimates an annualized decline in oil production of 9.1%. The Dept. of Energy agrees. By encouraging fuel efficiency now, we may also be economically incentivizing increased oil consumption that will hasten our problems. Increasing oil prices/dwindling supply will kill any chance of recovery as soon as it gets started, and eventually even your father won't be able to afford to drive his new Subaru more than 10 miles per week, if at all.
The assumptions that our government is making are based solely on wishful thinking. If their wishes don't come true, it is entirely possible that for the foreseeable future economic growth is quite literally a thing of the past.
These are the costs of our choices over the past 50 years, clunkers being a relatively small but perfectly typical example of the unsustainability of our thieving ways, greed and the corruption of our lying government. It is pure circus.
There are many costs that will have to be paid at some point, and it is not going to be very much fun. I hope that everyone enjoys the new car smell while they can.
Also, I am eating a perhaps my first ever Paula Red apple. It is quite fantastic! Almost better than Galas...!
What you are describing is a crash diet. I can not think of a single instance in modern history where that has worked out well. Of course I agree that we are too growth and consumption driven, but how we get off of that effectively involves a long-term process. I also agree that this program only pulled sales forward, and does not do much for long-term economic benefit, but as we just agreed long term economic benefit means growth, which should not be the end game. The point is a smooth transition. Growth does not equal consumption and vice versa. Not everyone is concerned measures stability by growth; many people lately use the unemployment numbers.
ReplyDeleteYou're right of course, we should transition slowly. I would never choose the crash diet path. Right now though, I don't think we're on any sort of diet at all. We're pigging out on chocolate covered bacon. The path we are taking is the opposite of a slow transition.
ReplyDeleteI am afraid that the crash diet will be imposed upon us by the cruel realities of our situation. Of course it is not going to work out well!
How do we get off of the addiction long term? I want a plan that will smoothly transition us to where we need to be. We have very real short term problems and the way we are dealing with them is rapidly removing many of the options that we have with regards to long term planning.
I would like to see the transition, but it can not happen without a fair amount of pain. We might be able to meter that pain out in small doses, but it will need to come. We can plan for and accept a shrinking GDP over the next 20 years, or it can come all at once. Market forces have been recognizing this and trying to correct since at least 1987, but we just keep printing more money and passing more laws intended to keep the party rolling.