I’m a fan of ‘synergies’ in policy – doing more than one thing you want done with one policy. Killing two birds, that kind of thing. These opportunities come up all the time, but we’re very often too flat footed to catch them. The last time Australia was good at this kind of thing was during the Hawke years when various deals with the unions had multiple worthwhile goals – like dealing with short and medium term macro objectives at the same time as contributing to longer term micro-economic objectives.
Anyway, over the fold is Alan Blinder’s ‘cash for clunkers’ proposal. Note, don’t try this trick at home, or if you do, don’t expect it to do as much good here as it could do in the US – because we’re not in a recession and because even if we were, we make less than 20% of the cars we use – and they’re not particularly fuel efficient.
A Modest Proposal: Eco-Friendly Stimulus, by Alan S. Blinder, Economic View, NY Times: Economists and members of Congress are now on the prowl for new ways to stimulate spending in our dreary economy. Heres my humble suggestion: Cash for Clunkers, the best stimulus idea youve never heard of.
Cash for Clunkers is a generic name for a variety of programs under which the government buys up some of the oldest, most polluting vehicles and scraps them. If done successfully, it holds the promise of performing a remarkable public policy trifecta stimulating the economy, improving the environment and reducing income inequality all at the same time. Heres how.
A CLEANER ENVIRONMENT … A California study estimated that cars 13 years old and older accounted for 25 percent of the miles driven but 75 percent of all pollution from cars. …
MORE EQUAL INCOME DISTRIBUTION …Most [clunkers] are owned … by low-income people. So if the government bought some of these vehicles at above-market prices, it would transfer a little purchasing power to the poor.
AN EFFECTIVE ECONOMIC STIMULUS With … the economy weakening, Cash for Clunkers would be a timely stimulus in 2009. … And the quickest, surest way to get more consumer spending is to put more cash into the hands of people who live hand-to-mouth. …
People who sell their clunkers would … be free to spend this money as they see fit, whether on a new car or truck or some other form of transportation or anything else. …
Cash for Clunkers is not the pipe dream of some academic scribblers. Local variants are either now in operation or have been tested in California, Colorado, Delaware, Illinois, Texas, Virginia and several Canadian provinces. So there is no need for a proof of concept….
The big need to date has been money, which is why the scope of Cash for Clunkers programs has been limited. And that, of course, is where the need for stimulus comes in. We now want intelligent ways for the federal government to spend money.
Heres a high-end cost calculation for a national program. Suppose we took two million cars off the road a year, at an average purchase price of $3,500… Including all the administrative costs of running the program, that would probably cost about $8 billion. … For stimulus purposes, it would, of course, be better to run the program on a larger scale, if possible. There are over 250 million cars and light trucks on American roads, and … at least 75 million clunkers. At five million cars a year an ambitious target, to be sure the program would cost less than $20 billion,… cheap compared with the $168 billion stimulus enacted in February.
And what would all this money buy? First, less pollution. … Second, the … direct income transfer to the owners of clunkers, who are mostly low-income people. Third, these folks would almost certainly spend the cash they receive not just the subsidy, but the entire payment, giving the economy a much-needed boost.
Oh, and I left out a fourth possible goal. By pulling millions of old cars off the road, Cash for Clunkers would stimulate the demand for new cars as people trade up. It need hardly be pointed out that our ailing auto industry, like our ailing economy, could use a shot in the arm right now. Scrapping two million or more clunkers a year should help. … Cash for Clunkers is an idea whose time may finally have come. Write your congressman.