Cash for clunkers

GELLERMAN: While trains are gaining steam, the car is still king in America. There are more than a quarter of a billion registered passenger vehicles in the United States. About a third are 13 years old or more – but they spew out 75 percent of the air pollution that comes from cars.

So if you own one of these stinkers, and want to get rid of it – Come on down! Alan Blinder has a deal for you. It’s called “Cash for Clunkers.” Blinder wants to put you in the driver’s seat of a clean machine, with the federal government picking up the tab to take that old polluting jalopy off your hands. Alan Blinder isn’t a used car dealer. He’s a professor of economics and public affairs at Princeton University, and former vice chairman of the Federal Reserve Board of Governors. Hi, Professor.

BLINDER: Hi.

GELLERMAN: Cash for Clunkers, nice ring. How does it work?

BLINDER: Well actually the states that have tried it haven’t actually called it Cash for Clunkers, that’s its nickname. But it works the following way. If you have a car that meets the parameters ? and that’s basically being old enough ? you can bring it in somewhere, it’s not always to the state government, this varies from states to state ? and get cash for it. The recipient, which would be the state government, say, then basically scraps the car. The idea is to get these clunkers that spew a lot of pollutants off the road.

GELLERMAN: Well let’s go through some of the statistics. I have a car let’s say, I don’t know, twelve, thirteen years old. What’s my car’s contribution to air pollution?

BLINDER: The estimates are for the clunkers as a whole. They range between ten, twenty, and up to as high as thirty times the amount of pollution per mile driven as a new car. Now, in reality, people that turn in clunkers, you know eighteen-year-old cars are something, may not be trading up to a new car. They’re more likely to be trading up to an average car, but that still reduces the amount of pollution coming out of the fleet as a whole by a very substantial amount.

GELLERMAN: So how much money is the federal government kicking in to this program?

BLINDER: Well, that’s a very elastic concept. In some of the state pilot programs the cost per car has been down around $500-$1000. I think that’s much too low, and I suggested that we go to as high as $5,000 for a car with an average maybe of $3000 or $3500. It’s an adjustable parameter depending on how large the government would want the program to be.

GELLERMAN: And that would be a federal program, because there are states as you mentioned ? there’s Virginia, Illinois, Colorado, California, Texas that do have these programs.

BLINDER: I would love it to be a national program. But the truth is that that this is one case where a number of states have been as they say “laboratories of democracy.” And it may well be that if this program’s going to get anywhere, it’s going to be on a state by state, rather than a national, basis. Though I would certainly prefer national.

GELLERMAN: So what are the benefits? Okay so, the state or the federal government buys my car, give me a voucher I guess is what you’re suggesting. And now I take that voucher and I can go out and buy anything I want?

BLINDER: Anything you want. Yeah, I would have them actually pay you cash. Some states do give a voucher that can be applied to the purchase of a car. I’d just give cash, let people spend it as they wish. So what are the benefits? The first is the obvious one that we’ve been talking about: reducing pollution, which is really what drives the idea. Secondly, I promoted it as a stimulus program, because if you think about who gets the money, it’s going to go predominantly to low income people who are driving fifteen, eighteen, twenty year old cars. What we’re pretty sure is that these people will go around, spend the money on something. It might be a better car or it might be something else. But they’ll spend it, and that’s the key thing for a stimulus program.

GELLERMAN: Well if people got cash for their clunkers, what’s to prevent them from running out and buying another clunker and doing it over and over again.

BLINDER: Nothing at all and, in fact, the more they do it the better it is. If you think about the dynamic of this. Suppose the cash for clunkers was going to pull all the eighteen-year-old and over off the road. People that took advantage of it would then have to buy a somewhat newer car. So they would buy, I don’t know, a twelve-year-old car. Well, it’s better for the environment to have twelve-year-old cars running around than eighteen-year-old cars, and so on as you climb the ladder. So turn over in that sense is not a bad thing. It’s a good thing actually.

GELLERMAN: Put a price tag on it. How much would it cost?

BLINDER: I’ve estimated a national program that took off the road two million cars a year, which I think is doable, though, slightly ambitious, would cost about eight billion.

GELLERMAN: You know you’re talking about the government picking up the tab for these clunkers, and I mean, we’re already in the hole many hundreds of billions of dollars. Can we afford this?

BLINDER: Well, yes and no. The point is that we’re at a juncture in the economy where lots of people are talking about the need for further stimulus. Now like it or not, stimulus means enlarging the deficit with more spending or with tax cuts. So for the long-run health of our financial system and the government budget we need to be thinking about reducing the deficit. But you don’t do that when the economy is weak, and in fact, just as we did this year ? earlier this year ? with the so-called tax rebates and other things, you often go for a temporary stimulus.

GELLERMAN: Professor, what’s your ride?

BLINDER: We have a 2000 – let’s see, a 2002 Lexus. And my son has a clunker, a 1994 Toyota, that I presume would be eligible for such a program, should a program be adopted. I think it’s time for him to scrap it actually, but that’s his decision.

GELLERMAN: So what would your son do with his 3500 bucks under your proposal?

BLINDER: I imagine he would apply that to a more expensive car. And, not just that I imagine ? sorry. This program has been piloted in a number of states, and they watch what people do. And the overwhelming majority do what I just described, move up to a somewhat newer car, take the money, add some more, and buy a newer car than what they sold.

GELLERMAN: Well thank you very much, Professor. I really appreciate it.

BLINDER: My pleasure.

GELLERMAN: Alan Blinder is a professor of economics and public affairs at Princeton University.