Cash for Clunkers: Don't Forget That Building New Cars Consumes Energy

Responding to a comment on my previous argument against Cash for Clunkers, I feel it's important to highlight that building new cars from scratch consumes energy. A commenter wrote:

Windows, as far as I know, have no negative externalities in the example Bastiat utilizes. This means that the value of the window is fully realized in the price paid for it. IF there are externalities, that may not be the case, as something may have a positive market value, but be enough of a social bad to negate that value.

Fuel inefficient cars have many externalities. Carbon emissions cost money in terms of the destruction caused by global warming. Extra money for fuel enriches enemies of our country in places like Iran, and we then have to spend money to fight terrorists funded by them. We have less global security because of the imports generally, not to mention balance of trade issues - we are replacing foreign goods (fuel) with domestic ones (cars, mostly produced here.)

Issues like this are complex. Treat them that way. I don't know what the net effect is, but it isn't quite so simple one way or the other.

And my reply:

Thanks for giving your view. Look, everything is complex. Breaking down issues into the major factors is how one makes smart decisions about complex situations. And worst case, if we can't figure out what the externalities are exactly, if we feel this is too complex, then we probably shouldn't implement a radical policy of destroying productive assets with easily visible value (resale prices via a deep resale market) in favor of hard to calculate, subjective externalities we are barely sure of.

 

I mean, you realize that building new cars from scratch uses energy also right? Considering this, it might even be worse to destroy old cars before their life is over since we are spending energy building new cars; even if the new cars are more fuel efficient once on the road. Think of all the parts that need to be shipped around and the materials which need to be created: the plastic, the steel. It takes a lot of energy to build a new car.

Thus destroying easily observable value in favor of externalities we can barely value or even be sure result in a net positive benefit, makes no sense. And at risk of being too simple, I venture to say that these externalities will be no where near the remaining value in these old cars, once one considers the energy required to build new cars from scratch.

Moving beyond this, and this is actually the bigger point, cash for clunkers has little to do with greenhouse gases and far more to do with A)subsidizing the auto-industry and B)giving US consumers a spending buzz whereby they feel great because they don't realize that the $4,500 they received as a rebate, deep down, came right out of their own pocket and was added to the US debt.

Why? Because if we truly wanted to save fuel there are many ways we can do this without destroying useful assets we currently have. Carbon emissions are produced by many sources, not just old cars, and one can for example make existing assets more efficient or put more money into new efficient assets, without having to destroy old assets that still have remaining value. Why not just give the rebate for new fuel efficient cars? Why not target plastics manufacturing? Why not livestock? Why do we need to destroy existing cars? Because it's all about subsidizing the auto industry, that's why, and understanding the broken window fallacy makes this all too clear, IMO. Not only is the externalities argument shaky when it comes to these used cars, but it's also a ruse to distract us from the real motive of this policy. That's my take at least, you decide from here.