Cash for Clunkers Should be Heaped

Demand has been so high for the Cash for Clunkers program that Congress increased funding from the initial $1 billion. The basics of the program are simple (and borrowed from the British “Cash for Bangers” – not nearly as catchy). The government will cut you a check for $3,500-$4,500 for turning in your gas guzzling clunker and buying a new, fuel-efficient car. There are certain parameters, of course. The clunker must be scrapped, and the amount paid depends on the gain in fuel efficiency.

Because the clunker is junked, the government is essentially handing out a check. As in, it is a four thousand dollar payment in exchange for purchasing a new car, and eliminating an old one. As the precept goes, every dollar of government spending must be paid for with a dollar of taxes. Thus, the taxpayer is shelling out a few billion dollars to get old cars off the road. Yes, some might posit that there is an ancillary Keynesian stimulation benefit – giving people money to spur the purchase of new cars (for the simple counter, see the precept two sentences prior).

Should the taxpayer be in the business of paying money to get old cars off the road? The approximate math of the program stacks up as follows. The $1 billion covers the purchase of 250,000 clunkers. The average car is driven about 15 thousand miles per year. That totals just less than 4 billion total miles driven. Assume the average fuel economy of the clunkers was 15 miles per gallon, and the average increase was 10 miles per gallon (the level required for the maximum government handout). The new cars, in aggregate, will use 100 million less gallons of gas. As a not so insignificant side note, the cost savings to the subsidized owners of the new cars would be roughly $300 million per year.

The reduced gasoline consumption is significant. That translates to roughly two billion less pounds of carbon dioxide production. An acre of trees consumes about 10,000 pounds of carbon dioxide per year (this varies widely, depending on the type of tree and the density – but the approximation is what counts here). Thus 200 thousand acres of trees would equate to the amount of gasoline usage eliminated. The cost to plant an acre of trees varies widely as well, though for this analysis $1,000 per acre will be used. It would then cost about $200 million to plant the equivalent trees. The $1 billion spent to buy the 250,000 clunkers would be enough to plant five times as many trees as would be required to cover the difference in carbon dioxide emissions. Yes, enough to cover twice the total CO2 produced by the clunkers in the first place.

Of course, the issue goes well beyond the simplified math. Average fuel economy has been steadily increasing over the years. Trading up from clunker to new car is part of the natural progression. If the government wanted to facilitate the process, there is an economically sound way to do it: reduce the burden of government spending and taxation. The economy will grow, jobs will be created, and people will have more money with which to buy new, more fuel efficient vehicles.