Thursday, August 6, 2009

Hooray For Cash For Clunkers

There's a bunch of commentary on the program out there, and Brad Plumer's post gives a pretty good roundup. If this statistic from ClimateProgress is right, it's good enough for me to consider the program a success: the better gas mileage of the new vehicles will save 72 million gallons of gas per year. At $3 per gallon, which I imagine is a pretty low estimate for gas prices in the coming half-decade, the program pays for its $1 billion cost in 5 years. On top of that, you get some stimulus benefits, and the environmental benefits of using less gas.

Plus, people get nice new cars. Not that I'm a big car guy -- I've never owned one, and hope to avoid the need for car ownership as long as possible -- but apparently people enjoy having new ones and we utilitarians are happy to see people get what they want.


Blar said...

At $3 per gallon, which I imagine is a pretty low estimate for gas prices in the coming half-decade, the program pays for its $1 billion cost in 5 years.

This seems like a weird way to compare costs and benefits. Saving money on gas is a benefit for the car buyers. The $1 billion is the cost to the government, but there's also the cost to the car buyers of what they paid for their new cars. Wouldn't it make more sense to count the buyers' benefit as partially offsetting the buyers' costs, rather than the government's costs? After all, the buyers presumably took into account the fact that they'd be saving money on gas when they decided to buy a new car through the clunker program - that's part of what made the deal worthwhile for them.

Neil Sinhababu said...

We could look at it this way: The taxpayers pay $1 billion. Over 5 years, $1 billion worth of gas supply is freed up. I'm not totally sure who get that gas (probably, everybody's gas prices go down a little bit because of the extra supply). But we're basically making a billion dollars worth of new gas appear, and it's distributed among everybody. Now, some of those people might not be Americans, which raises some issues if you look at this in a national-interest way. But overall paying $1 billion to save $1 billion in resources and create a bunch of side benefits is a nice deal for the world.

Blar said...

We're saving resources in the form of $1 billion in gas, but we're also using more resources to create the new cars.

It seems like an analysis should either include everything, or it should just focus on the social benefits & costs (like Brad's analysis, which only counts the externalities of gas, not the full price).

Neil Sinhababu said...

Hmmm, yeah, good point. I guess the cars are kind of cheaper because they were just sitting there and not being bought in a bad economy, but there's definitely some economic value lost.

BruceMcF said...

At $3 per gallon, the marginal gallon being imported, and a multiplier of 1.5, the program pays for its $1b in 5 years in terms of reduced imports (if you view the unsustainable structural import dependency as the problem being addressed) or 10 years (if you view the import drag on economic growth as the problem being addressed.

Obviously, the higher the multiplier we suppose, the faster the payback in terms of economic growth ... if we were to pursue an economic policy that actually provided us with industrial activity that enjoyed an accelerator-multiplier effect, that multiplier could get back over 2 (though probably not in a mere five years).