@Jaybird, Your problem is that I've understood everything you said. If you aren't going to get better arguments your best shot is to present the ones you have in a more confusing manner. In other words if you're going to put lemons on your lot give them a nice wax job at least.
Because the worst cars out there (those 1977 Datsuns that I keep complaining about) are still there.
I thought you said the 77 Datsun got good mpg? If some are still on the road why is that a major issue?
We’d get more benefit from getting rid of those than we would from getting rid of a number of Ford SUVs.
How so? A Ford SUV worth $500 gets worse mpg than a 77 Datsun worth $500.
Heck, we’d get a non-zero amount of benefit from straight up trading the Ford SUVs for those Datsuns.
I'm not sure how. I guess the Datsun owner gets a benefit from switching to a Ford SUV but what does the Ford SUV owner get? Money? Then have the Datson owner pay the Ford owner.... Yea I suppose if we are crushing a Ford SUV the Datsun owner might as well take it and enjoy its use....but that would lower the average mpg on the road while one of our goals was to increase it.
Look I get it. The junked cars had some value. That value was their market price. If the average junked car was worth $500 then the cost of the destroyed capital was $350m (not billion). As I pointed out, I think the true value of the destroyed capital was less than its market price (and since I believe the non-engine parts and scrap metal was still able to be sold it's not even like the full $500 was lost). That's a pretty small portion of the $3B (11.6% of the program) so it's a cost I'm willing to live with in the name of removing some low mpg from the roads.
120 point inspection program, fixing them up, and turning the $500 car, with a little maintenance, back into a $2500 car with only $1000 worth of parts/labor that....
The problem here is that you forget why the value of the junked cars was probably on the low end rather than the high end. The value of the voucher is $4500 minus the value of the junked car. The car you describe isn't really worth $500, its worth $1000 since adding parts and labor lets you profit by $1000 in selling rather than only $500 from selling without fixing it up. A car that's worth $1000 is less appealing to the C4C program than a car that's worth $500 since the benefit of the voucher is $3500 ($4500-$1000) rather than $4000 ($4500-$500).
Now of course these numbers change if people were, in mass, turning in $5000 Dodge Rams, Mercedes and Juagars to be junked. But you have yet to explain why you consider this a possibility even worth serious consideration.
You began this argument with $24000 per new car ($3B divided by the # of net new cars sold). We are now debating pennies on the dollar (700,000 vehicles turned in times their true economic value net whatever the scrap value of their metal and non-engine parts were)
@Jaybird, OK so do it then. The worse case is that you shell out $500 to grab an engine from a car that was junked not as part of the C4C program and you sell the car for $3000 instead of $2500. Since used car prices are 'soaring' anyway you should be able to pull this off. Whose stopping you?
@Jaybird, What would “doing nothing” have done to car sales?
Well by your source they would have been 125K less.
Well, it would have spread the same amount over the same amount of time except done it evenly rather than front-loaded them.
Except, though, front loading them was a good thing in this case.
And still you dodge the benefit of having higher mpg cars than would have otherwise happened. Why not go to the 'cost per blue car' metric? If you want to be silly after having it demonstrated to you a hundred times go for the whole hog instead of half a one!
So the car is worth $500 yet by applying 'magic' it could have turned into a $2500 car? Why don't you buy this $500 car from the junk yard and make it happen? Sure the engine was destroyed but you can put a new one in for less than $500 (since, of course, the car as a whole was worth $500 its used engine has to be worth less).
Perhaps the reason you don't do this is that only in your imagination is auto labor actually free.
That doesn't explain, though, how eliminating high blue book values from the list would have made the program better.
@Jaybird, Yes but it demonstrates the poverty of your argument. So C4C did something other than just make 125K additional net sales, it moved sales up a few months.
So an alternative plan that simply made 125K new sales but did not move anything up a few months would do less than the actual C4C. But that same plan would 'score' the same by your metric, $24,000 per new car sold.
See how your metric lacks helpfulness....just like calculating 'cost per blue car sold'? We haven't even added in yet the consideration that C4C drove higher mpg than would have otherwise happened.
given that my point was never the 2001 Ram but that the list contained cars with a fair amount of life left that would be worth trading to people who could use the heck out of them (and a good measurement of that was “price”), I stand by my underlying point.
Would you rather I use the 1999 Infiniti QX4? The 2003 Isuzu Rodeo? 2003 Isuzu Rodeo Sport? The 1999 Jaguar XJ-Series? (Seriously? There are Jaguars on this list??? What the hell???) The 1996 Lexus LX 450? The 1998 Mercedes-Benz M-Class? (They have Mercedes-Benz cars on this list…)
Your underlying point remains refuted. What you're missing, again, is (I'll put the most important things on top).
1. Car owners are unlikely to trade a valuable car in for less than its worth. Even if a '99 Jauguar is on the list it's unlikely anyone would turn one in for $4500 unless that was some exceptional mileage on it that made it worth a lot less than what it normally is. So screening the list for Blue Book values above $4500 would not have made the program any better.
2. Blue book values are at best averages and tend to be 'best cases'. Just because the book says so and so is worth $6,000 doesn't mean it really is.
3. Even if the book value is accurate it remains an average. A 2001 Dodge Ram owned by Hank Hill may very well be worth $5K because he pampers it like a baby. The same car owned by his neighbor might be worth only $500. Why should the gov't exclude a low mpg car from the list just because some of those cars might be valuable?
4. Even if a car owner was stupid and shows up with a car worth $10K seeking the C4C trade in, the dealer would find it faster and easier to just offer the guy $4500 for the trade in and avoid the C4C paperwork.
5. This is last for everyone else but probably should be first for you. You asserted a large number of C4C vehicles were valuable. You based this on nothing other than the fact that because potentially valuable cars were on the list of cars acceptable for the program those were the cars actually turned in and destroyed. Your point remains that if gov't doesn't prohibit a stupid transaction people will do it in mass. This is like saying if its legal to light your cigars with $20 bills we need to start printing lots of $20 bills because we will soon see a shortage.
I think we exhausted the 'wasted capital' argument. It's either close to zero or some larger number that still isn't that far from zero since most cars destroyed by the program almost certainly were worth far less than the $4500 voucher (even the 2001 Dodge Ram).
I'd like to just talk about the last remaining argument here that has legs, namely $24,000 per new car sold.
1. In terms of pure stimulus, $4500 is $4500. If the gov't lowered payroll taxes by $3B for 700K people that would work out to about $4500 per person with no 'action'. (Let's forget about supply side arguments about people opting to take jobs if taxes are lower).
2. So what if the program simply sent checks of $4500 to random people who brought new cars with high mpg's a month or two befre? Certainly this program would be worse than $24K per new car sold in terms of Jaybird's metric because zero new car sales would happen since the program simply rewards people who already purchased cars (OK technically some of them might take their $4500 to the dealer and buy another car but let's forget about that). In terms of stimulus though, this program works....even though I think most of us would rather see #1 instead. #1 probably would help people who are struggling while this program helps people who are probably doing just fine....if you're buying a new car in the middle of a depression you are probably relatively secure financially.
3. Now imagine a program that paid $4500 only for sales that wouldn't have happened. This would require some science fiction but just suppose a combination of data mining and one time sociological breakthru allows the gov't to identify 700,000 clunker owners who are not going to buy a new car but would if offered the $4500 opportunity. In this case the cost per car sold works out to be $4500 since every car sold is a sale that wouldn't have happened without the progrm.
Per Jaybird's metric #1 and #2 yield horrible results as they generate almost no new car sales. The cost per car sold is, let's say, $3 Billion (let's just say that 1 person opts to use his tax savings or surprise $4500 check to buy a new car). #3 is fantastic since its millions of times better than #1 and #2, it's also about 5 times better than the real life C4C program (assuming $24K is correct).
Thing is it doesn't really look that much more fantastic. Yes its better for the auto industry but in terms of stimulus that's a double sided coin. People who would have brought a car anyway had $4500 more to spend elsewhere, those industries wouldn't get those sales if #3 was in effect. It might be better for our mpg goal. But more importantly Jaybird's way of looking at things would say #3 is better than even #1....but #1 to me and most people looks best of all. Long story short his metric is measuring something real but using it as he does is crappy.
Consider a slightly different way of using the metric. Suppose you're head of Toyota Prius's division and you want to boost sales. You lower the price by $4500. You were selling 575K units per year, but now you sell 700K units per year. All else equal, your 'cost per new sale' is not $4500 per unit. It's more like $24,000 since you had to cut the price not only on the 125K additional units you sold but the 525K you were selling to begin with. $4500 of value 'leaked' to the 525K people who were buying Priuses anyway. This is true of most price cuts. Very few bring so many new customers to the mix that they are greater than existing customers. This doesn't make it a bad policy, though, since it very well may be that the margin on the 125K additional sales offsets the $2,362,500 less in revenue you get from the original buyers (525K times $4500).
What's interesting about this though is:
A. If your role was auto company executive, 'cost per additional unit sold' is a valid metric but still not one that really carries the day. The 'cost' might very well be $24,000 but the $4500 price cut may still make sense to the bottom line.
B. In terms of the economy, the $4500 doesn't 'leak'. If Joe Smith brought a new car with the $4500 and his 7 brothers were going to buy a new car anyway but took their $4500 and redid their decks, went out to eat, paid off some credit card debts and so on. The stimulus is still valid. Toyota doesn't get the $4500 the 525K customers saved (unless they buy other Toyota products with it). The economy though, does get it. So in those terms the $24,000 per car metric becomes even less valid.
1. The cars destroyed by the actual real life program probably did have a ZERO economic value for the reasons I've given multiple times. Yes they have value 'to someone' just as a field of growing corn has value to someone but at the same time we know if corn was properly priced (no subsidies, protectionism etc.) some of those 'valuable' fields would cease growing corn. The obsession with proving destruction of economic value here comes from the error of assuming a perfect market to begin with. Unfortunately the market for low end used cars is especially vulnerable to the distortions that we have built into our actual world as opposed to the textbok perfect one.
2. Jaybird being peeved, nothing I said about his positions is false. He has staked out everyone one of them with only some trivial misunderstandings here (i.e. the 'cost per car' being 5 figures, not 6....a large number of cars destroyed being worth $4-$5K, not all 2001 Dodge Rams worth $4-5K).
3. ". I don’t have to worry about distribution, because I already support a distribution system, namely the free market."
Yea ok but that's not a hypothetical program to give 700,000 cars to the 'needy' (or if we are talking about keeping it to $3B let's say giving away about 230K new cars worth $13K each). In terms of stimulus $3B is $3B but I suspect the C4C had a bit higher multiplier at work. Why? Because the program was structured to pull actual spending from individuals into the mix both in terms of those who opted to buy cars they otherwise weren't (let's say 125K) and from those who did either buying more expensive cars (to score higher mpg) or having $4200 more in cash that they could spend on other things. That plus going forward you have about $1K per year less spent on oil (which is 50% imported at this point?) that would likely be redirected towards other domestic spending.
In terms of improving mpg? Assuming the new cars would have above average mpg I suppose it would push up the US fleet average, I suspect C4C did better by rewarding making a larger jump in mpg AND removing below average cars from the fleet.
In terms of helping the auto industry? Jaybird's 'cost per real new car' metric may come back to bite you here. Yes the gov't buys 230K cars from GM to give away to poor people. Those poor people are either not going to buy new cars they otherwise were, are going to sell off used cars they already own or not buy used cars they otherwise would have. Somewhere in the market you're going to see people who would have otherwise brought new cars not buy one because 230K people got free new cars from the gov't. The actual net increase in auto sales, then, is still less than the number of vehicles involved.
You need to be a bit more specific here. How would the needy be selected, what type of cars would they be given? How do you avoid the competition that would inevitably result in an Oprah style car giveaway? Such a program might be better than C4C, or it might be a diaster with Fox News profiling the spoiled 19 yr old kid who gets a brand new Prius because he qualifies as 'poor' since he has no income while his single mother neighbor making $22K a year driving a 10 yr old clunker doesn't win an "Obama Car".
Just about anything can be done better in hindsight. Saying its possible to imagine a better progrma doesn't make the one that really happened a failure and just imagining it is just that....your imagination. There's no way to trust that brining your imaginary program from your head into real life wouldn't reveal a host of problems that you are not anticipating. Even so saying program A happened but program B would have been better is not the same as saying program A failed. Jaybird's assertion was that the program did more harm than good. To date I don't think that's been established.
2. "It’s that, or we could go around breaking windows. "
Yawn, here we go again with the destroyed cars. First Jaybird tried to tell us they couldn't be priced in terms of money. Then he told us lots of them were worth thousands. Look destroying the engines done because part of the goal was to increase the average mpg of the US fleet so clunkers were taken off the road in exchange for high mpg new cars. If, as Jaybird thinks, that was not one of the programs goals you could have simply droped the 'destroy the cars' part of the program and left everything else the same.
But again here I think you have to consider that the program was relatively small, targetted mostly at the low end junk cars with low mpg, and that the market price of gas is lower than its true price. Putting all that together and it's pretty hard to see much real cost from destroying the cars. I would suspect that most of the cars would have been destroyed if the market was more efficient. As I said if this was a $30B or $300B program the capital eaten up would more likely move beyond the junk that was just riding around because of accidential market inefficiencies and would start taking a bite out of real auto capital.
@Jaybird, So I take it you are now backing down on your assertion that the 2001 Ram is worth around $5K and you are backing down from your assertion that it was stupid for the gov't to not exclude 'valuable' cars from the list of acceptable cars for trade in? You've spent a dozen posts wasting our time arguing something that you will now pretend you never said.
@Boonton, Actually a program that paid for improved windows on homes probably would destroy the original windows, I never heard of a market for used windows. So there too you'd have to confront the fact that you are destroying some capital that could, in theory, still give you some more years of useful service.
The $24000 number remains pretty stupid for reasons we've been over a thousand times now.
Was it wisdom that caused the program to his a 'sweet spot'? I don't think so. It was the fact that it was small (small steps are less likely to result in you breaking something), that it was fast (hanging around a long time gives people the chance to figure out how to game the system), and that in a depression just about anything you spend money on returns its value in stimulus.
Let's just pretend that every car was in fact a 'new sale' that wouldn't have happened without the program (not all that crazy, it just requires assuming very elastic demand for cars). The 'cost per car' then would be just south of $4500. I don't see why that would make such an important difference to Jaybird. 125000 new sales or 700,000 new sales is important for the auto industry but for the economy it simply means that instead of other things (movies, books, plastic toys at Wal-Mart, carpets), cars were purchased. If your interest is the entire economy why is motivating new car sales by itself such an important metric for you?
For those who argue now that C4C hasn't caused the increase in used car prices but was a 'factor' (that's a nice weasal word, technically your nephew ruining his 1995 Civic by driving it without oil is likewise a 'factor' in used car prices) might want to look at the above. The number of cars flooded each year totals tens of thousands. Large hurricans like Floyd, Ivan and Katrina have destroyed 75,000 to 100,00 cars at a clip.
With that in mind we know that C4C destroyed 700,000 vehicles of which 84% were trucks leaving 16% cars or 112,000 cars. That basically means C4C had no more impact on used car supply than a year with a major hurricane.
Why is the metric useless?
Because, for the hundredth time, the program had multiple goals only one of which was to increase car sales. Judging it only by dividing estimated new car sales into the total $3B is as silly as dividing sales of blue cars into the $3B. The program served multiple goals:
1. Get higher mpg cars on the road. This it clearly did.
2. Stimulate the auto business. This it did
3. Increase car sales. This it did.
4. Stimulate the economy generally. This it did.
If the goal was only to increase car sales, Congress could have just passed a first come first serve $4500 rebate for any new car purchase. Likewise when you have multiple goals you can have a success even if one goal isn't accomplished. Even if, for example, there were ZERO net new car sales the program could still succeed by motivating higher mpg purchases than would have otherwise happened and moving demand from future months into the crises months.
You asked how that estimate could go down and I showed you. The metric is almost meaningless as the programs primary purpose was not to necessarily motivate new car sales.
Did it boost sales? Yes. Did sales plunge after the program failed? Yes. Did the amount sales plunged more or less map to the amount sales improved?
If the answer is yes then what we have done is nothing more than shuffled up sales by a couple of months.
You already answered that question as you asserted $24K as the cost of each 'true' new sale generated. So you've already asserted that the program did not simply shift future sales to the present.
Although you haven't explained why 'shifting' should be considered a totally useless exercise during a period of crises.
And the costs, as have been demonstrated, were $24000 per car. That’s at the low end. You can make that number go up (as has been demonstrated) but you can’t make it go down.
Actually you can.
1. Include the fact that the program almost certainly made some people buy cars with more mpg than they otherwise would have. This would lower the 'cost per action motivated'
2. As is often the case, estimates of what 'would have happened' are often based on averages of previous periods. This is all well and good provided you are looking at a time period that's 'typical'. If you're not, however, your estimates are wrong. For example, if the estimate of 125K new sales is based on what auto sales typically look like in a recession, well you are not accounting for the pretty much undeniable fact that this is an exceptional recession. In that case there would have been much fewer sales if the program hadn't happened which means your cost per sale is actually lower.
3. As I pointed out the actual payments IMO were acting as pure stimulus in a depressed economy making their effective cost $0. The actual cost then is the value of destroyed capital, which you've tried to imply is very high but have provided no good explanation for why other than the possibility that 2001 Dodge Ram owners are exceptionally irrational and gov't failed to save them from making a stupid trade.
{Note again my 'right size right time' criteria. I wouldn't necessarily make this claim if the program was done again during more normal times or if it was exceptionally larger than the $3B that was actually spent on it}
@Boonton, it seems to me that the whole program was certainly improvable, no?
Yes, but then there's not much in life you can say is 'not improvable'. On the other hand it appears to have done good and it could have been a lot worse. For example, it would have been a lot worse if you had been allowed anywhere near the design of the program. Instead you've been safely relagated to backseat driver where the potential harm you can inflict is minimized.
As it stands, I think that the fact that in the middle of a crisis that *THIS* was the best that we could hope for from our Congress/Senate to get to the President to sign is indicative of a lot of problems.
Last I checked we have/had a $750B stimulus, $700B TARP, as well as massive stimulus from the Fed. This is a very tiny program relatively speaking that appears to have caused no real harm outside of your imagination.
Please reread what I wrote. I was saying that we would need to compensate, in our hypothetical program — which was different from the real-world one — for the environmental damage caused by leaving the clunkers on the road.
I'm not really sure I follow this. I suspect the destruction of used cars wasn't really a broken window. They were cars and trucks that would have been taken off the road IF other policies made the price of fuel more accurately reflect its full environmental and political costs. In this sense the policy of destroying the C4C cars actually was offsetting other policies that cut in the other direction.
Consider a policy that puts a slight tax on corn syrup. On its own its a tax with various distortionary effects but in the larger context of the way things actually are corn receives huge benefits from foolish subsidies. A corn syrup tax would slightly offset some of that. Of course the ideal policy in the ideal world would be no syrup tax and no subsidies.
Put it another way: Suppose we had Cash for Clunkers exactly as it was, plus we broke a window.
Good idea, or no? Obviously no.
Or do you mean to say Cash for Clunkers without breaking a window because the major criticism seems to be destroying the used cars was destroying useful capital? I'd say bad idea because destroying the cars actually increased the benefits of the program for the scale that it was enacted for. If C4C was, say, ten times larger I'd say you'd start destroying capital that really was useful. At $30B or $300B I'd probably say C4C wouldn't be as good but at $3B I think it might have hit the sweet spot of 'just right size at right time'.
For the stuff you didn't claim, I meant it to be a list of all the stuff tossed out so far by everyone. There's no fabrications there but probably some misunderstandings. Jaybird did claim, for example, that a number of cars traded in were very valuable and the only basis was the 2001 Dodge Ram was on the list as an acceptable car to trade in.
This is an important point because if owners did trade in cars that were very valuable that would increase the value of the capital destroyed possibly tipping it away from simply correcting a market inefficiency and towards destroying useful capital. But the only way to make that argument viable is to have owners acting very irrationally
Maybe its me but I'm having trouble keeping track of all the 'replies'....I'm more used to comment threads that are sequential rather than the branching structure here so if no one objects I'm just going to throw my replies to the bottom:
1. Might be nice to have the option to swap one of those out with a 2001 Ram, no?
Yes but it wouldn't have helped me. I believe the C4C program required you to have the clunker registered and insured for 6 months or a year beforehand. This was to prevent people from pulling cars out of the junkyard to claim the credit.
2. You can't make the $24,000 figure go down.
Yea you can. How many of the people who were going to buy cars anyway opted to buy a car with better mpg than they otherwise would have? That alone would lower the $24K figure (assuming you got an accurate picture of how many 'would have' brought anyway).
3. Incentive for people not to maintain their cars.
This would be a valid problem if the program wasn't temporary or if it was much larger than it was. Basically if you'd have to register and insure your $500 dying car a year before the program was passed. You would have to know ahead of time not only that this program was coming but also that your dying car wouldn't die too soon leaving you carless before the program was passed. As it stands if you had a car that was about to die and you traded it in at C4C this is less of a subsidy and more of a stroke of luck for you.
Kellys is at Kbb dot com. For some reason I've tried topost the link multiple times but the site won't let the comment up. Perhaps it it's on a spam list?
Anyway, there's a difference between a low value used car and a car on its last legs. I've driven used cars that couldn't fetch more than $500 for multiple years before hitting a repair bill making it better to junk the vehicle.
- Granted the claim was five figures. Nonetheless as the program's goals were only partially about selling additional cars this calculation is as meaningless as saying the cost per blue car with white strip sold is $250,000.
2. Used car prices higher
81% of vehicles traded in were trucks. So not only was a tiny portion of the US fleet traded in but only a tiny portion of that wsa cars to begin with. As asserted by the author of this post:
And the payback isn’t long in coming — today’s used car prices are soaring owing to reduced supply.
Sorry 'soaring used car prices' were asserted to be attributable to C4C and that's not plausible if you bother to give the facts even a casual glance.
3. "I’ll just say that your beef here is with the person who left the comment at 09.06.10 at 10:34 am."
I didn't say all the silly assertions belong to you only.
4. SUV for SUV / 4 of the top ten cars purchased were SUVs
This you conceded but continue to backtrack. The top 10 vehicles purchased were:
Toyota Corolla
Honda Civic
Toyota Camry
Ford Focus FWD
Hyundai Elantra
Nissan Versa
Toyota Prius
Honda Accord
Honda Fit
Ford Escape FWD
Of these only the Escape jumps out as possibly an SUV to me (seems to be a small one though). I didn't look up all of them so I could be wrong. Maybe the Prius and Versa are SUVs
5. "The 2001 Dodge RAM made up nearly half the trade ins."
I quoted you twice now, look at the previous comments. You implied 360K of the vehicles were worth in the mid four range. Granted you didn't say the RAM made them up.
6. "That owners inexplicably traded in their cars for less than they were worth."
The only way for valuable used cars to get destroyed by the program is for owners to trade them in. Simply being able to trade in a Cadelliac Escalade worth $20K for $4.5K doesn't mean thousands of such Caddys were destroyed by the program.
7. That used car engines can't be measured by money? "Where was this made? This seems similar to your arguments, rather than the arguments of the glibertarians on the board."
Money is not wealth. Money is a convenient fiction/collective illusion/etc.
8. "It was pointed out that there was a huge boost in sales for the program and then sales plunged."
Yet for the whole year sales tracked higher post-program than pre-program.
9. "This slight shifting of demand from a few months in the future wasn’t only the assertion… ..."
No but you did assert it was a cost. How is it a cost for about 11% of sales or so to shift from the future to the present during a period of slack demand and economic crises?
It accelerated sales (that were going to happen anyway) by two months at enormous cost and then destroyed a number of vehicles (360,000?) that are trading in the mid-four figures now…
The only car you cited that you think is worth mod-four figures is the 2001 Ram but yes it is a leap to think you meant only the 01 Ram made up the 360K 'mid-four' cars you were talking about.
@Boonton, my point about the 2001 Ram was not that 2001 Ram owners were stupid, but that the government was.
Why? The only one looking stupid here is you.
1. You ignore the fact that Kelly quotes a fair condition 2001 RAM as worth $1900, nowhere near $4500.
2. You ingore the fact that its often very hard to achieve a 'blue book' price for a used car.
3. You ignore the fact that even if the average 2001 RAM is worth $5000 or more that's just an average. Some used RAMS are worth a lot less.
The only reason for asserting including the RAM is stupid is assuming RAM owners are too stupid to realize their trucks are worth more than $4500 and therefore the gov't must protect them from making a bad deal.
If, however, the government spends $24000 per car sold during cash for clunkers, I do have grounds to say something to the effect of “No, Boonton, the program was not ‘successful’.”
As demonstrated, this figure means almost nothing. You might as well say the gov't spent $750,000 per blue car with white strip purchased.
Also since its been asserted we can't count stuff we can't precisely measure then you can't count 'cars that would have been brought anyway'.
What I said was this (and I will quote myself): “I don’t need mass insanity on the part of the buyers. I just need mass insanity on the part of the committees who created the bill.”
So if the gov't doesn't prohibit someone from making a foolish transaction that's all that's needed for foolish transactions? Foolish transactions aren't prevented by, ohhh, say the fact that people are typically interested in getting the best deal they can?
Nowhere did I say that it was a major portion of the 360,000 vehicles traded in.
Hmmmm....
It accelerated sales (that were going to happen anyway) by two months at enormous cost and then destroyed a number of vehicles (360,000?) that are trading in the mid-four figures now…
So again how do you logically go from it being theoretically possible for someone to turn in a vehicle that trades in the mid four figures to a number of vehicles (360,000?) being worth more than $4500?
@Jason Kuznicki, 1. I'm not sure what the 'environmental damage' is of adding higher than average mpg cars to the US fleet.
2. I never said the cost of capital destroyed was not zero. I've said that multiple times which is why I've pointed out saving 300 gallons or so per year pays for much of the capital cost within a year or so (assuming car owners are not as stupid as Jaybird's impression of 2001 Ram owners). If I ever said there was no capital cost then there would be no need to estimate the 'payback' of the cost from the gas savings.
3. Altogether, we’d have a more efficient program, which tells us that something is still badly amiss. You’re still defending a broken window, and it’s getting more and more embarrassing as we go.
What's embarrassing is that you guys make up all your facts while I do the leg work here. Here is a partial list of failed assertions that wouldn't have been made if you guys actually put some effort into researching what you're talking about:
* The cost per car is in the six figure range.
* Used car prices are now high because the program destroyed a portion of used car supply.
* The typical trade was SUV for SUV
* The 2001 Dodge RAM made up nearly half the trade ins.
* That owners inexplicably traded in their cars for less than they were worth.
* The value of the cars destroyed was over $5000.
* A used car engine of a low mpg car is of such special value that it cannot be expressed in terms of crass money!
* That there was a huge crash in auto sales post program.
* That slight shifting of demand (about 11% of yearly sales) from a few months in the future to the present is a "huge cost".
The assertion here wasn't that the program could have been better, that it could have been more efficient but that it was a FAILURE. After spinning and respinning a dozen failed claims the only thing you have to fall back on is what I've said all along, that destroying the used cars was a capital cost.
What's annoying here is that maybe if you guys are willing to give up your thrice refuted red herrings we can actually address that one valid concern, which I already did. Namely....
In a perfectly efficient market gas prices would reflect their full costs, which is more than the price you see at the pump. Low mpg cars would be less valuable in such a perfect market which means the bottom end of the used car supply would end up in the junk yard sooner. Since the program was small and only impacted a small portion of the fleet (note my comments on how I wouldn't feel as comfortable if the program was $30B or $300B as opposed to $3B), I suspect a lot of the capital destruction was capital that should have been destroyed anyway. Of course, my ideal preference is to try to estabish a more transparant market removing subsidies, hidden costs and other distortions accross the board but that not being the world we're going to get this policy IMO probably offset in the opposite direction other foolish policies making it actually a zero cost policy.
@Jaybird, So why did the government include it in the list of cars eligible?
Presumably because it gets low mpg. More importantly how do you logically go from 'on the list of vehicles eligeable' to be traded in to it being a major portion of 360,000 vehicles traded in?
Your hysterics on the RAM makes no sense at all. Why shouldn't it be on the list? It's a truck that has a very low mpg, why wouldn't we want people to trade it up? Your reasons seem to be because you think the 2001 RAM is worth more than $4500. So what?
1. Are you saying the owners of RAMs are stupid and will sell for $4500 when their trucks are really worth $6000? If so then you have a big argument against the market economy. If people are so stupid that they can't make even basic decisions about how much their stuff is worth then what hope is there for markets?
2. Do you buy used cars sight unseen with nothing but quotes from Edmunds as though used cars were shares on the S&P 500? You do realize that just because the 'average' 2001 Dodge Ram is worth $5000 that doesn't mean every 2001 Ram is worth $5000. Some are in exceptional shape and are worth more. Others are worth way less.
Now, saying it was an “SUV for SUV” was an overstatement… but 4 of the top 10 cars traded for were either trucks or SUVs.
Well we have the average mpg of both the traded in vehicles and the new vehicles and there's certainly a serious improvement.
http://www.dot.gov/affairs/2009/dot13309.htm has the categories and unfortunately SUV isn't a category but 404K vehicles brought were cars, 231K were 'category 1 trucks'. You can see on the trade in chart most of the trade ins were category 1 and 2 trucks While there might have been some SUV For SUV trade ins they were wither for improvements in mpg or were swamped by other trades that yielded much better mpg savings.
On the issue of sales being down:
We have the wsj chart already of the annual rate of auto sales. While sales did track down for a month or two following C4C they are higher in the half year after the program than the half year before. I'm not clear, though, why this is such a horrible thing to you. Moving some future demand forward to the present moment doesn't seem like a bad idea when you're in the deepest part of a recession that's bordering on depression. I've asked you before what is the 'cost' of this and you've been unable to really articulate any cost. I can see in a period of full employment this could be a cost by misallocating labor to handling the spurt of sales and then losing it when the ditch comes but in 2009 we had plenty of labor to spare so what's the cost?
*Comment archive for non-registered commenters assembled by email address as provided.
On “Cash for Clunkers, Indeed”
@Jaybird, Your problem is that I've understood everything you said. If you aren't going to get better arguments your best shot is to present the ones you have in a more confusing manner. In other words if you're going to put lemons on your lot give them a nice wax job at least.
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Jaybird
Because the worst cars out there (those 1977 Datsuns that I keep complaining about) are still there.
I thought you said the 77 Datsun got good mpg? If some are still on the road why is that a major issue?
We’d get more benefit from getting rid of those than we would from getting rid of a number of Ford SUVs.
How so? A Ford SUV worth $500 gets worse mpg than a 77 Datsun worth $500.
Heck, we’d get a non-zero amount of benefit from straight up trading the Ford SUVs for those Datsuns.
I'm not sure how. I guess the Datsun owner gets a benefit from switching to a Ford SUV but what does the Ford SUV owner get? Money? Then have the Datson owner pay the Ford owner.... Yea I suppose if we are crushing a Ford SUV the Datsun owner might as well take it and enjoy its use....but that would lower the average mpg on the road while one of our goals was to increase it.
Look I get it. The junked cars had some value. That value was their market price. If the average junked car was worth $500 then the cost of the destroyed capital was $350m (not billion). As I pointed out, I think the true value of the destroyed capital was less than its market price (and since I believe the non-engine parts and scrap metal was still able to be sold it's not even like the full $500 was lost). That's a pretty small portion of the $3B (11.6% of the program) so it's a cost I'm willing to live with in the name of removing some low mpg from the roads.
120 point inspection program, fixing them up, and turning the $500 car, with a little maintenance, back into a $2500 car with only $1000 worth of parts/labor that....
The problem here is that you forget why the value of the junked cars was probably on the low end rather than the high end. The value of the voucher is $4500 minus the value of the junked car. The car you describe isn't really worth $500, its worth $1000 since adding parts and labor lets you profit by $1000 in selling rather than only $500 from selling without fixing it up. A car that's worth $1000 is less appealing to the C4C program than a car that's worth $500 since the benefit of the voucher is $3500 ($4500-$1000) rather than $4000 ($4500-$500).
Now of course these numbers change if people were, in mass, turning in $5000 Dodge Rams, Mercedes and Juagars to be junked. But you have yet to explain why you consider this a possibility even worth serious consideration.
You began this argument with $24000 per new car ($3B divided by the # of net new cars sold). We are now debating pennies on the dollar (700,000 vehicles turned in times their true economic value net whatever the scrap value of their metal and non-engine parts were)
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@Jaybird, OK so do it then. The worse case is that you shell out $500 to grab an engine from a car that was junked not as part of the C4C program and you sell the car for $3000 instead of $2500. Since used car prices are 'soaring' anyway you should be able to pull this off. Whose stopping you?
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@Jaybird, What would “doing nothing” have done to car sales?
Well by your source they would have been 125K less.
Well, it would have spread the same amount over the same amount of time except done it evenly rather than front-loaded them.
Except, though, front loading them was a good thing in this case.
And still you dodge the benefit of having higher mpg cars than would have otherwise happened. Why not go to the 'cost per blue car' metric? If you want to be silly after having it demonstrated to you a hundred times go for the whole hog instead of half a one!
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@Jaybird,
So the car is worth $500 yet by applying 'magic' it could have turned into a $2500 car? Why don't you buy this $500 car from the junk yard and make it happen? Sure the engine was destroyed but you can put a new one in for less than $500 (since, of course, the car as a whole was worth $500 its used engine has to be worth less).
Perhaps the reason you don't do this is that only in your imagination is auto labor actually free.
That doesn't explain, though, how eliminating high blue book values from the list would have made the program better.
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@Jaybird, Yes but it demonstrates the poverty of your argument. So C4C did something other than just make 125K additional net sales, it moved sales up a few months.
So an alternative plan that simply made 125K new sales but did not move anything up a few months would do less than the actual C4C. But that same plan would 'score' the same by your metric, $24,000 per new car sold.
See how your metric lacks helpfulness....just like calculating 'cost per blue car sold'? We haven't even added in yet the consideration that C4C drove higher mpg than would have otherwise happened.
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Jaybird
Your underlying point remains refuted. What you're missing, again, is (I'll put the most important things on top).
1. Car owners are unlikely to trade a valuable car in for less than its worth. Even if a '99 Jauguar is on the list it's unlikely anyone would turn one in for $4500 unless that was some exceptional mileage on it that made it worth a lot less than what it normally is. So screening the list for Blue Book values above $4500 would not have made the program any better.
2. Blue book values are at best averages and tend to be 'best cases'. Just because the book says so and so is worth $6,000 doesn't mean it really is.
3. Even if the book value is accurate it remains an average. A 2001 Dodge Ram owned by Hank Hill may very well be worth $5K because he pampers it like a baby. The same car owned by his neighbor might be worth only $500. Why should the gov't exclude a low mpg car from the list just because some of those cars might be valuable?
4. Even if a car owner was stupid and shows up with a car worth $10K seeking the C4C trade in, the dealer would find it faster and easier to just offer the guy $4500 for the trade in and avoid the C4C paperwork.
5. This is last for everyone else but probably should be first for you. You asserted a large number of C4C vehicles were valuable. You based this on nothing other than the fact that because potentially valuable cars were on the list of cars acceptable for the program those were the cars actually turned in and destroyed. Your point remains that if gov't doesn't prohibit a stupid transaction people will do it in mass. This is like saying if its legal to light your cigars with $20 bills we need to start printing lots of $20 bills because we will soon see a shortage.
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I think we exhausted the 'wasted capital' argument. It's either close to zero or some larger number that still isn't that far from zero since most cars destroyed by the program almost certainly were worth far less than the $4500 voucher (even the 2001 Dodge Ram).
I'd like to just talk about the last remaining argument here that has legs, namely $24,000 per new car sold.
1. In terms of pure stimulus, $4500 is $4500. If the gov't lowered payroll taxes by $3B for 700K people that would work out to about $4500 per person with no 'action'. (Let's forget about supply side arguments about people opting to take jobs if taxes are lower).
2. So what if the program simply sent checks of $4500 to random people who brought new cars with high mpg's a month or two befre? Certainly this program would be worse than $24K per new car sold in terms of Jaybird's metric because zero new car sales would happen since the program simply rewards people who already purchased cars (OK technically some of them might take their $4500 to the dealer and buy another car but let's forget about that). In terms of stimulus though, this program works....even though I think most of us would rather see #1 instead. #1 probably would help people who are struggling while this program helps people who are probably doing just fine....if you're buying a new car in the middle of a depression you are probably relatively secure financially.
3. Now imagine a program that paid $4500 only for sales that wouldn't have happened. This would require some science fiction but just suppose a combination of data mining and one time sociological breakthru allows the gov't to identify 700,000 clunker owners who are not going to buy a new car but would if offered the $4500 opportunity. In this case the cost per car sold works out to be $4500 since every car sold is a sale that wouldn't have happened without the progrm.
Per Jaybird's metric #1 and #2 yield horrible results as they generate almost no new car sales. The cost per car sold is, let's say, $3 Billion (let's just say that 1 person opts to use his tax savings or surprise $4500 check to buy a new car). #3 is fantastic since its millions of times better than #1 and #2, it's also about 5 times better than the real life C4C program (assuming $24K is correct).
Thing is it doesn't really look that much more fantastic. Yes its better for the auto industry but in terms of stimulus that's a double sided coin. People who would have brought a car anyway had $4500 more to spend elsewhere, those industries wouldn't get those sales if #3 was in effect. It might be better for our mpg goal. But more importantly Jaybird's way of looking at things would say #3 is better than even #1....but #1 to me and most people looks best of all. Long story short his metric is measuring something real but using it as he does is crappy.
Consider a slightly different way of using the metric. Suppose you're head of Toyota Prius's division and you want to boost sales. You lower the price by $4500. You were selling 575K units per year, but now you sell 700K units per year. All else equal, your 'cost per new sale' is not $4500 per unit. It's more like $24,000 since you had to cut the price not only on the 125K additional units you sold but the 525K you were selling to begin with. $4500 of value 'leaked' to the 525K people who were buying Priuses anyway. This is true of most price cuts. Very few bring so many new customers to the mix that they are greater than existing customers. This doesn't make it a bad policy, though, since it very well may be that the margin on the 125K additional sales offsets the $2,362,500 less in revenue you get from the original buyers (525K times $4500).
What's interesting about this though is:
A. If your role was auto company executive, 'cost per additional unit sold' is a valid metric but still not one that really carries the day. The 'cost' might very well be $24,000 but the $4500 price cut may still make sense to the bottom line.
B. In terms of the economy, the $4500 doesn't 'leak'. If Joe Smith brought a new car with the $4500 and his 7 brothers were going to buy a new car anyway but took their $4500 and redid their decks, went out to eat, paid off some credit card debts and so on. The stimulus is still valid. Toyota doesn't get the $4500 the 525K customers saved (unless they buy other Toyota products with it). The economy though, does get it. So in those terms the $24,000 per car metric becomes even less valid.
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1. The cars destroyed by the actual real life program probably did have a ZERO economic value for the reasons I've given multiple times. Yes they have value 'to someone' just as a field of growing corn has value to someone but at the same time we know if corn was properly priced (no subsidies, protectionism etc.) some of those 'valuable' fields would cease growing corn. The obsession with proving destruction of economic value here comes from the error of assuming a perfect market to begin with. Unfortunately the market for low end used cars is especially vulnerable to the distortions that we have built into our actual world as opposed to the textbok perfect one.
2. Jaybird being peeved, nothing I said about his positions is false. He has staked out everyone one of them with only some trivial misunderstandings here (i.e. the 'cost per car' being 5 figures, not 6....a large number of cars destroyed being worth $4-$5K, not all 2001 Dodge Rams worth $4-5K).
3. ". I don’t have to worry about distribution, because I already support a distribution system, namely the free market."
Yea ok but that's not a hypothetical program to give 700,000 cars to the 'needy' (or if we are talking about keeping it to $3B let's say giving away about 230K new cars worth $13K each). In terms of stimulus $3B is $3B but I suspect the C4C had a bit higher multiplier at work. Why? Because the program was structured to pull actual spending from individuals into the mix both in terms of those who opted to buy cars they otherwise weren't (let's say 125K) and from those who did either buying more expensive cars (to score higher mpg) or having $4200 more in cash that they could spend on other things. That plus going forward you have about $1K per year less spent on oil (which is 50% imported at this point?) that would likely be redirected towards other domestic spending.
In terms of improving mpg? Assuming the new cars would have above average mpg I suppose it would push up the US fleet average, I suspect C4C did better by rewarding making a larger jump in mpg AND removing below average cars from the fleet.
In terms of helping the auto industry? Jaybird's 'cost per real new car' metric may come back to bite you here. Yes the gov't buys 230K cars from GM to give away to poor people. Those poor people are either not going to buy new cars they otherwise were, are going to sell off used cars they already own or not buy used cars they otherwise would have. Somewhere in the market you're going to see people who would have otherwise brought new cars not buy one because 230K people got free new cars from the gov't. The actual net increase in auto sales, then, is still less than the number of vehicles involved.
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Jason Kuznicki
1. Cars to the needy
You need to be a bit more specific here. How would the needy be selected, what type of cars would they be given? How do you avoid the competition that would inevitably result in an Oprah style car giveaway? Such a program might be better than C4C, or it might be a diaster with Fox News profiling the spoiled 19 yr old kid who gets a brand new Prius because he qualifies as 'poor' since he has no income while his single mother neighbor making $22K a year driving a 10 yr old clunker doesn't win an "Obama Car".
Just about anything can be done better in hindsight. Saying its possible to imagine a better progrma doesn't make the one that really happened a failure and just imagining it is just that....your imagination. There's no way to trust that brining your imaginary program from your head into real life wouldn't reveal a host of problems that you are not anticipating. Even so saying program A happened but program B would have been better is not the same as saying program A failed. Jaybird's assertion was that the program did more harm than good. To date I don't think that's been established.
2. "It’s that, or we could go around breaking windows. "
Yawn, here we go again with the destroyed cars. First Jaybird tried to tell us they couldn't be priced in terms of money. Then he told us lots of them were worth thousands. Look destroying the engines done because part of the goal was to increase the average mpg of the US fleet so clunkers were taken off the road in exchange for high mpg new cars. If, as Jaybird thinks, that was not one of the programs goals you could have simply droped the 'destroy the cars' part of the program and left everything else the same.
But again here I think you have to consider that the program was relatively small, targetted mostly at the low end junk cars with low mpg, and that the market price of gas is lower than its true price. Putting all that together and it's pretty hard to see much real cost from destroying the cars. I would suspect that most of the cars would have been destroyed if the market was more efficient. As I said if this was a $30B or $300B program the capital eaten up would more likely move beyond the junk that was just riding around because of accidential market inefficiencies and would start taking a bite out of real auto capital.
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@Jaybird, So I take it you are now backing down on your assertion that the 2001 Ram is worth around $5K and you are backing down from your assertion that it was stupid for the gov't to not exclude 'valuable' cars from the list of acceptable cars for trade in? You've spent a dozen posts wasting our time arguing something that you will now pretend you never said.
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@Boonton, Actually a program that paid for improved windows on homes probably would destroy the original windows, I never heard of a market for used windows. So there too you'd have to confront the fact that you are destroying some capital that could, in theory, still give you some more years of useful service.
The $24000 number remains pretty stupid for reasons we've been over a thousand times now.
Was it wisdom that caused the program to his a 'sweet spot'? I don't think so. It was the fact that it was small (small steps are less likely to result in you breaking something), that it was fast (hanging around a long time gives people the chance to figure out how to game the system), and that in a depression just about anything you spend money on returns its value in stimulus.
Let's just pretend that every car was in fact a 'new sale' that wouldn't have happened without the program (not all that crazy, it just requires assuming very elastic demand for cars). The 'cost per car' then would be just south of $4500. I don't see why that would make such an important difference to Jaybird. 125000 new sales or 700,000 new sales is important for the auto industry but for the economy it simply means that instead of other things (movies, books, plastic toys at Wal-Mart, carpets), cars were purchased. If your interest is the entire economy why is motivating new car sales by itself such an important metric for you?
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@Jaybird, Interesting link:
http://www.carfax.com/car_buying/flood_damage_cars.cfx
For those who argue now that C4C hasn't caused the increase in used car prices but was a 'factor' (that's a nice weasal word, technically your nephew ruining his 1995 Civic by driving it without oil is likewise a 'factor' in used car prices) might want to look at the above. The number of cars flooded each year totals tens of thousands. Large hurricans like Floyd, Ivan and Katrina have destroyed 75,000 to 100,00 cars at a clip.
With that in mind we know that C4C destroyed 700,000 vehicles of which 84% were trucks leaving 16% cars or 112,000 cars. That basically means C4C had no more impact on used car supply than a year with a major hurricane.
Why is the metric useless?
Because, for the hundredth time, the program had multiple goals only one of which was to increase car sales. Judging it only by dividing estimated new car sales into the total $3B is as silly as dividing sales of blue cars into the $3B. The program served multiple goals:
1. Get higher mpg cars on the road. This it clearly did.
2. Stimulate the auto business. This it did
3. Increase car sales. This it did.
4. Stimulate the economy generally. This it did.
If the goal was only to increase car sales, Congress could have just passed a first come first serve $4500 rebate for any new car purchase. Likewise when you have multiple goals you can have a success even if one goal isn't accomplished. Even if, for example, there were ZERO net new car sales the program could still succeed by motivating higher mpg purchases than would have otherwise happened and moving demand from future months into the crises months.
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@Jaybird,
You asked how that estimate could go down and I showed you. The metric is almost meaningless as the programs primary purpose was not to necessarily motivate new car sales.
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Did it boost sales? Yes.
Did sales plunge after the program failed? Yes.
Did the amount sales plunged more or less map to the amount sales improved?
If the answer is yes then what we have done is nothing more than shuffled up sales by a couple of months.
You already answered that question as you asserted $24K as the cost of each 'true' new sale generated. So you've already asserted that the program did not simply shift future sales to the present.
Although you haven't explained why 'shifting' should be considered a totally useless exercise during a period of crises.
And the costs, as have been demonstrated, were $24000 per car. That’s at the low end. You can make that number go up (as has been demonstrated) but you can’t make it go down.
Actually you can.
1. Include the fact that the program almost certainly made some people buy cars with more mpg than they otherwise would have. This would lower the 'cost per action motivated'
2. As is often the case, estimates of what 'would have happened' are often based on averages of previous periods. This is all well and good provided you are looking at a time period that's 'typical'. If you're not, however, your estimates are wrong. For example, if the estimate of 125K new sales is based on what auto sales typically look like in a recession, well you are not accounting for the pretty much undeniable fact that this is an exceptional recession. In that case there would have been much fewer sales if the program hadn't happened which means your cost per sale is actually lower.
3. As I pointed out the actual payments IMO were acting as pure stimulus in a depressed economy making their effective cost $0. The actual cost then is the value of destroyed capital, which you've tried to imply is very high but have provided no good explanation for why other than the possibility that 2001 Dodge Ram owners are exceptionally irrational and gov't failed to save them from making a stupid trade.
{Note again my 'right size right time' criteria. I wouldn't necessarily make this claim if the program was done again during more normal times or if it was exceptionally larger than the $3B that was actually spent on it}
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@Jaybird,
@Boonton, it seems to me that the whole program was certainly improvable, no?
Yes, but then there's not much in life you can say is 'not improvable'. On the other hand it appears to have done good and it could have been a lot worse. For example, it would have been a lot worse if you had been allowed anywhere near the design of the program. Instead you've been safely relagated to backseat driver where the potential harm you can inflict is minimized.
As it stands, I think that the fact that in the middle of a crisis that *THIS* was the best that we could hope for from our Congress/Senate to get to the President to sign is indicative of a lot of problems.
Last I checked we have/had a $750B stimulus, $700B TARP, as well as massive stimulus from the Fed. This is a very tiny program relatively speaking that appears to have caused no real harm outside of your imagination.
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@Jason Kuznicki, Jason Kuznicki
Please reread what I wrote. I was saying that we would need to compensate, in our hypothetical program — which was different from the real-world one — for the environmental damage caused by leaving the clunkers on the road.
I'm not really sure I follow this. I suspect the destruction of used cars wasn't really a broken window. They were cars and trucks that would have been taken off the road IF other policies made the price of fuel more accurately reflect its full environmental and political costs. In this sense the policy of destroying the C4C cars actually was offsetting other policies that cut in the other direction.
Consider a policy that puts a slight tax on corn syrup. On its own its a tax with various distortionary effects but in the larger context of the way things actually are corn receives huge benefits from foolish subsidies. A corn syrup tax would slightly offset some of that. Of course the ideal policy in the ideal world would be no syrup tax and no subsidies.
Put it another way: Suppose we had Cash for Clunkers exactly as it was, plus we broke a window.
Good idea, or no? Obviously no.
Or do you mean to say Cash for Clunkers without breaking a window because the major criticism seems to be destroying the used cars was destroying useful capital? I'd say bad idea because destroying the cars actually increased the benefits of the program for the scale that it was enacted for. If C4C was, say, ten times larger I'd say you'd start destroying capital that really was useful. At $30B or $300B I'd probably say C4C wouldn't be as good but at $3B I think it might have hit the sweet spot of 'just right size at right time'.
For the stuff you didn't claim, I meant it to be a list of all the stuff tossed out so far by everyone. There's no fabrications there but probably some misunderstandings. Jaybird did claim, for example, that a number of cars traded in were very valuable and the only basis was the 2001 Dodge Ram was on the list as an acceptable car to trade in.
This is an important point because if owners did trade in cars that were very valuable that would increase the value of the capital destroyed possibly tipping it away from simply correcting a market inefficiency and towards destroying useful capital. But the only way to make that argument viable is to have owners acting very irrationally
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Maybe its me but I'm having trouble keeping track of all the 'replies'....I'm more used to comment threads that are sequential rather than the branching structure here so if no one objects I'm just going to throw my replies to the bottom:
1. Might be nice to have the option to swap one of those out with a 2001 Ram, no?
Yes but it wouldn't have helped me. I believe the C4C program required you to have the clunker registered and insured for 6 months or a year beforehand. This was to prevent people from pulling cars out of the junkyard to claim the credit.
2. You can't make the $24,000 figure go down.
Yea you can. How many of the people who were going to buy cars anyway opted to buy a car with better mpg than they otherwise would have? That alone would lower the $24K figure (assuming you got an accurate picture of how many 'would have' brought anyway).
3. Incentive for people not to maintain their cars.
This would be a valid problem if the program wasn't temporary or if it was much larger than it was. Basically if you'd have to register and insure your $500 dying car a year before the program was passed. You would have to know ahead of time not only that this program was coming but also that your dying car wouldn't die too soon leaving you carless before the program was passed. As it stands if you had a car that was about to die and you traded it in at C4C this is less of a subsidy and more of a stroke of luck for you.
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Kellys is at Kbb dot com. For some reason I've tried topost the link multiple times but the site won't let the comment up. Perhaps it it's on a spam list?
Anyway, there's a difference between a low value used car and a car on its last legs. I've driven used cars that couldn't fetch more than $500 for multiple years before hitting a repair bill making it better to junk the vehicle.
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@Jaybird,1. Six versus five figures
- Granted the claim was five figures. Nonetheless as the program's goals were only partially about selling additional cars this calculation is as meaningless as saying the cost per blue car with white strip sold is $250,000.
2. Used car prices higher
81% of vehicles traded in were trucks. So not only was a tiny portion of the US fleet traded in but only a tiny portion of that wsa cars to begin with. As asserted by the author of this post:
Sorry 'soaring used car prices' were asserted to be attributable to C4C and that's not plausible if you bother to give the facts even a casual glance.
3. "I’ll just say that your beef here is with the person who left the comment at 09.06.10 at 10:34 am."
I didn't say all the silly assertions belong to you only.
4. SUV for SUV / 4 of the top ten cars purchased were SUVs
This you conceded but continue to backtrack. The top 10 vehicles purchased were:
Toyota Corolla
Honda Civic
Toyota Camry
Ford Focus FWD
Hyundai Elantra
Nissan Versa
Toyota Prius
Honda Accord
Honda Fit
Ford Escape FWD
Of these only the Escape jumps out as possibly an SUV to me (seems to be a small one though). I didn't look up all of them so I could be wrong. Maybe the Prius and Versa are SUVs
5. "The 2001 Dodge RAM made up nearly half the trade ins."
I quoted you twice now, look at the previous comments. You implied 360K of the vehicles were worth in the mid four range. Granted you didn't say the RAM made them up.
6. "That owners inexplicably traded in their cars for less than they were worth."
The only way for valuable used cars to get destroyed by the program is for owners to trade them in. Simply being able to trade in a Cadelliac Escalade worth $20K for $4.5K doesn't mean thousands of such Caddys were destroyed by the program.
7. That used car engines can't be measured by money? "Where was this made? This seems similar to your arguments, rather than the arguments of the glibertarians on the board."
8. "It was pointed out that there was a huge boost in sales for the program and then sales plunged."
Yet for the whole year sales tracked higher post-program than pre-program.
9. "This slight shifting of demand from a few months in the future wasn’t only the assertion… ..."
No but you did assert it was a cost. How is it a cost for about 11% of sales or so to shift from the future to the present during a period of slack demand and economic crises?
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@Jaybird,
As previously quoted:
The only car you cited that you think is worth mod-four figures is the 2001 Ram but yes it is a leap to think you meant only the 01 Ram made up the 360K 'mid-four' cars you were talking about.
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Jaybird
@Boonton, my point about the 2001 Ram was not that 2001 Ram owners were stupid, but that the government was.
Why? The only one looking stupid here is you.
1. You ignore the fact that Kelly quotes a fair condition 2001 RAM as worth $1900, nowhere near $4500.
2. You ingore the fact that its often very hard to achieve a 'blue book' price for a used car.
3. You ignore the fact that even if the average 2001 RAM is worth $5000 or more that's just an average. Some used RAMS are worth a lot less.
The only reason for asserting including the RAM is stupid is assuming RAM owners are too stupid to realize their trucks are worth more than $4500 and therefore the gov't must protect them from making a bad deal.
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@Jaybird,
As demonstrated, this figure means almost nothing. You might as well say the gov't spent $750,000 per blue car with white strip purchased.
Also since its been asserted we can't count stuff we can't precisely measure then you can't count 'cars that would have been brought anyway'.
So if the gov't doesn't prohibit someone from making a foolish transaction that's all that's needed for foolish transactions? Foolish transactions aren't prevented by, ohhh, say the fact that people are typically interested in getting the best deal they can?
Hmmmm....
So again how do you logically go from it being theoretically possible for someone to turn in a vehicle that trades in the mid four figures to a number of vehicles (360,000?) being worth more than $4500?
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@Jason Kuznicki, 1. I'm not sure what the 'environmental damage' is of adding higher than average mpg cars to the US fleet.
2. I never said the cost of capital destroyed was not zero. I've said that multiple times which is why I've pointed out saving 300 gallons or so per year pays for much of the capital cost within a year or so (assuming car owners are not as stupid as Jaybird's impression of 2001 Ram owners). If I ever said there was no capital cost then there would be no need to estimate the 'payback' of the cost from the gas savings.
3. Altogether, we’d have a more efficient program, which tells us that something is still badly amiss. You’re still defending a broken window, and it’s getting more and more embarrassing as we go.
What's embarrassing is that you guys make up all your facts while I do the leg work here. Here is a partial list of failed assertions that wouldn't have been made if you guys actually put some effort into researching what you're talking about:
* The cost per car is in the six figure range.
* Used car prices are now high because the program destroyed a portion of used car supply.
* The typical trade was SUV for SUV
* The 2001 Dodge RAM made up nearly half the trade ins.
* That owners inexplicably traded in their cars for less than they were worth.
* The value of the cars destroyed was over $5000.
* A used car engine of a low mpg car is of such special value that it cannot be expressed in terms of crass money!
* That there was a huge crash in auto sales post program.
* That slight shifting of demand (about 11% of yearly sales) from a few months in the future to the present is a "huge cost".
The assertion here wasn't that the program could have been better, that it could have been more efficient but that it was a FAILURE. After spinning and respinning a dozen failed claims the only thing you have to fall back on is what I've said all along, that destroying the used cars was a capital cost.
What's annoying here is that maybe if you guys are willing to give up your thrice refuted red herrings we can actually address that one valid concern, which I already did. Namely....
In a perfectly efficient market gas prices would reflect their full costs, which is more than the price you see at the pump. Low mpg cars would be less valuable in such a perfect market which means the bottom end of the used car supply would end up in the junk yard sooner. Since the program was small and only impacted a small portion of the fleet (note my comments on how I wouldn't feel as comfortable if the program was $30B or $300B as opposed to $3B), I suspect a lot of the capital destruction was capital that should have been destroyed anyway. Of course, my ideal preference is to try to estabish a more transparant market removing subsidies, hidden costs and other distortions accross the board but that not being the world we're going to get this policy IMO probably offset in the opposite direction other foolish policies making it actually a zero cost policy.
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@Jaybird, So why did the government include it in the list of cars eligible?
Presumably because it gets low mpg. More importantly how do you logically go from 'on the list of vehicles eligeable' to be traded in to it being a major portion of 360,000 vehicles traded in?
Your hysterics on the RAM makes no sense at all. Why shouldn't it be on the list? It's a truck that has a very low mpg, why wouldn't we want people to trade it up? Your reasons seem to be because you think the 2001 RAM is worth more than $4500. So what?
1. Are you saying the owners of RAMs are stupid and will sell for $4500 when their trucks are really worth $6000? If so then you have a big argument against the market economy. If people are so stupid that they can't make even basic decisions about how much their stuff is worth then what hope is there for markets?
2. Do you buy used cars sight unseen with nothing but quotes from Edmunds as though used cars were shares on the S&P 500? You do realize that just because the 'average' 2001 Dodge Ram is worth $5000 that doesn't mean every 2001 Ram is worth $5000. Some are in exceptional shape and are worth more. Others are worth way less.
Now, saying it was an “SUV for SUV” was an overstatement… but 4 of the top 10 cars traded for were either trucks or SUVs.
Well we have the average mpg of both the traded in vehicles and the new vehicles and there's certainly a serious improvement.
http://www.dot.gov/affairs/2009/dot13309.htm has the categories and unfortunately SUV isn't a category but 404K vehicles brought were cars, 231K were 'category 1 trucks'. You can see on the trade in chart most of the trade ins were category 1 and 2 trucks While there might have been some SUV For SUV trade ins they were wither for improvements in mpg or were swamped by other trades that yielded much better mpg savings.
On the issue of sales being down:
We have the wsj chart already of the annual rate of auto sales. While sales did track down for a month or two following C4C they are higher in the half year after the program than the half year before. I'm not clear, though, why this is such a horrible thing to you. Moving some future demand forward to the present moment doesn't seem like a bad idea when you're in the deepest part of a recession that's bordering on depression. I've asked you before what is the 'cost' of this and you've been unable to really articulate any cost. I can see in a period of full employment this could be a cost by misallocating labor to handling the spurt of sales and then losing it when the ditch comes but in 2009 we had plenty of labor to spare so what's the cost?
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