A better stimulus program?

My uncle, Kevin Collins, who is an economist, kindly pointed me to an article in Sunday's New York Times written by Alan Blinder, the author of one of his school textbooks (Mr. Blinder also was a Vice Chairman of the Federal Reserve and is now a professor of economics at Princeton University). In his piece, A Modest Proposal: Eco-Friendly Stimulus, Mr. Blinder describes a seemingly more effective method of not only boosting our economy but also improving the environment, our health, and fuel prices. Mr. Blinder proposes a "Cash for Clunkers" scheme in which the government targets low-income owners of inefficient, polluting autos and pays them an above market price for the vehicles. Why should we do such a thing? Let's take a look at some of the benefits (most of them taken from his article):

1) It puts spending money in the hands of those with low-income, who are coincidentally hardest hit by this recession and housing crisis. Low-income people are far more likely to spend their entire stimulus checks than middle- or high-income people, who are more likely to invest some or all of them.

2) Most of the money will likely immediately be spent on cars, giving a shot in the arm to our struggling auto industry (on which many low-income workers coincidentally depend).

3) The costs of even an ambitious program would be a drop in the bucket of the current stimulus expenditures (see the article for number crunching).

4) MOST IMPORTANTLY (in my humble opinion), it would remove polluting, gas-guzzling cars from the road. Consider this:

• The oldest cars are those with the worst emissions, so recycling (by recycling I mean scrapping parts) them would clean up our air considerably (Mr. Blinder cites a California study that blames 75% of car pollution on cars 13+ years old).
  
• Older cars are more inefficient (especially if engine repairs cannot be afforded by cash-strapped owners), so they waste gasoline and oil.
• As noted in the widely publicized Duke University study, replacing a very inefficient vehicle with a merely inefficient vehicle will save more fuel than replacing a car of regular efficiency with a high-efficiency vehicle; thus, if we as a country want to reduce our collective oil usage, we have to start by improving the worst of the worst guzzling offenders first.

Now, being the economist he is, Kevin played devil's advocate with me, as I will do for you right here. There are many obstacles to such a program that Mr. Blinder fails to mention. For instance, which do you think is more popular with voters? Nearly all citizens receiving a check from the government or a bunch of low-income families having their cars replaced at everyone else's expense? Let's look at other drawbacks of "Cash for Clunkers":

1) As just stated, this would be another welfare program that would require public opinion to be adequately conquered before ever being implemented.

2) Giving cash to those with "clunkers" would not be fair to those in the ultra low-income bracket who do not even own cars, instead choosing to take transit or alternative transportation. Why should we reward those who are polluting while ignoring those who have been doing the right thing all along?

3) The administrative costs (i.e. determining who is qualified, which particular cars are eligible, where the cars go afterward, disposal fees, etc.) could make the program run in the red very quickly if not properly managed (although this hasn't stopped other government programs!).

4) And, the biggest problem? The auto industry will likely not get that aforesaid "shot in the arm." Why not? Imagine that a low-income owner of a clunker gets 120% of the value of his car (as Mr. Blinder suggests). Most cars more than a decade old are worth very little money. So, what is this person going to buy to replace his vehicle? A slightly newer clunker? The problem is that the car companies aren't the ones selling these cars, it is middle-income folks who will put their "better" clunkers on the market. Thus, the stimulus would be transferred from the poor straight to the middle class, defeating the whole "purchasing power straight to the poor" purpose of the program.

Are all these negatives reason not to implement the program? I think not. Think of "Cash for Clunkers" this way: It is an economic fix that, even if it does not stimulate the economy as much as one may hope, will still do a better job than the current stimulus system (handing out free cash to everyone). And, if all else fails, the environment will ultimately be better off.