My Side of an LA Times Debate with Ed Leamer, Part II
Part II:
Dust-Up: Cash for clunkers -- a clunker? -- latimes.com: Brad DeLong and Edward E. Leamer agree that the program, though effective in the short term, represents a missed opportunity.
What good are we doing by destroying the clunkers? Point: Brad DeLong
I find it hard to imagine that you and I will find much to disagree on today, Ed. Yes, there are lots of unemployed autoworkers who will be doing nothing if we don't boost auto demand. Yes, it would be good if we had a set of policies that actually gave people the right incentives to buy the right kind of car and drive the right amount -- policies that make people feel in their wallets the cost of global warming and the cost of the fact that because their cars are on I-5, everybody else has to go slower.
I suspect that you and I could immediately get behind a plan to tax gasoline more, issue bonds now to be amortized by the gasoline tax far into the future and return the money to consumers by using the funds from the bonds to give cash back to people who buy high-mileage cars. That would provide a good short-run Keynesian stimulus to get autoworkers back to work; it would also be a good long-run environmental policy. Since it would be budget-neutral (or budget-positive), spend money now and lock in the tax increases to pay off the bonds later, it would be a win-win-win.
But that's not what "cash for clunkers" is. We are destroying the clunkers, which could be very useful things in Africa or the poorer parts of Latin America or Asia; it would be cheap to load the cars onto some of the idle container ships off Long Beach and send them off. What we're doing instead is simply a waste. John Maynard Keynes wrote that if you couldn't think of anything else to do, bury money in holes in the ground so people have an incentive to hire the unemployed to dig it up. That's much worse than having the government spend money on things that are useful. But it seems better than "cash for clunkers," which looks to me like the equivalent of breaking windows so we can then put people to work fixing them.
Here I do think that a genuine opportunity has been lost. I don't think that "cash for clunkers" is positively harmful; the destruction of the clunkers isn't costing us very much, and that cost is probably offset by the benefit of lowering unemployment a little bit. The program is certainly well-targeted at Michigan, which needs all the help it can get. The blip in car sales is real, and it will serve as a Keynesian stimulus: People will be rehired sooner to rebuild the auto inventories that have been drawn down, and they will then have higher incomes and spend more. The places where they shop will have more sales and hire people who will then have higher incomes, and so on.
But we could have done so much better, as far as environmentally friendly stimulus proposals are concerned. It really does make me cry.
