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Why One Economist Pushed Cash For Clunkers
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Why One Economist Pushed Cash For Clunkers

Economy

Why One Economist Pushed Cash For Clunkers

Why One Economist Pushed Cash For Clunkers
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The federally sponsored "cash for clunkers" program allows consumers to trade in their gas guzzlers for more fuel efficient cars, and receive up to $4500 from the government. Alan Blinder pitched the idea last year as a way to reduce auto emissions and bolster the economy.

LYNN NEARY, host:

Last week, President Obama signed a $2 billion extension of the Cash for Clunkers program, which gives car owners rebates to trade in their old vehicles for more fuel-efficient ones. The program is usually popular among car buyers and boosted auto sales, but there's also criticism of its economic and environmental consequences.

Today, we speak with an economist who proposed a national Cash for Clunkers program a year before it was implemented. And we want to hear from you. How has this program affected you? Car buyers, dealers, mechanics - give us a call: 800-989-8255. And the email address is talk@npr.org.

Alan Blinder joins us now from Princeton University, where he is a professor of economics. He wrote an op-ed for the New York Times in July of 2008 called "A Modest Proposal: Eco-Friendly Stimulus."

Welcome to the program.

Professor ALAN BLINDER (Princeton University): Oh, nice to be here, Lynn.

NEARY: Now, when you wrote that op-ed, this was not an untried idea that you were talking about. There were similar programs both here and abroad. What made you think this would be a good idea?

Prof. BLINDER: Well, the country at that point was looking for, maybe I should say, thinking seriously about stimulus. We are already in the economic soup in July 2008. And this is an idea that I had become familiar with in the early '90s and actually tried to sell. I was in the original Clinton government. I tried to sell it there in '93 without success. So I thought 15 years later might be a time to try again.

(Soundbite of laughter)

NEARY: Now, you've seen this idea proposed on a big scale now. Has it turned out the way you expected it to?

Prof. BLINDER: Well, certainly not. Things that come through Congress never come out the way you expect them to. I mean, my proposal focused much more on, for example, emissions than on miles per gallon, although they're related, but they're not the same. And also, importantly to me, one of its objectives was to assist poor people who tend to own the clunkers. The way the law was written, you could only get the cash for the clunker if you bought a new car. And a lot of poor people can't afford to buy a new car.

NEARY: Right. To be honest with you, that's a discussion we had in our family. We had - I thought we had two clunkers, to be honest with you.

(Soundbite of laughter)

NEARY: But even though one car is very old, it wasn't a clunker. But, you know, when we talked about it, the question came up, well, should we take on more debt even though we're getting this, you know…

Prof. BLINDER: Right.

NEARY: …we would get this $4,500.

Prof. BLINDER: That's right. In the proposal I made, you would get the $4,500 period. And then, you know, you might have had people trading off from a 15-year-old car to a five-year-old car. And then the person with the five-year-old car would probably trade up to a new car. That's the way I - and in previous incarnations of this program, by the way, in various states, had envisioned it. But that's not the way it got enacted.

NEARY: Now, what do you think has worked well about it?

Prof. BLINDER: Well, I think the stimulus part has worked swimmingly. And I should have mentioned, when I wrote that piece in July '08, I mentioned four objectives. We already talked about three: stimulus, anti-poverty and pro-environment. Right at the end, I said, And by the way, it would be good for the automobile industry. Well, that's been the objective, of course, that's been the guiding light of this legislation, this national legislation. I think it's been quite effective. I mean it's been a big stimulus to sales.

NEARY: Yeah. But even there, there are critics who say these are people who would have bought the cars anyway only over a longer stretch of time. This has just sort of consolidated the sales into one small stretch of time.

Prof. BLINDER: Yeah. I hear that criticism both for this and for stimulus in general, and it just misses the point. Stimulus is exactly designed to do what you said. You want to get spending into periods of time like the present, when spending is very weak and on account of that, the economy is very weak. So you do want to actually carry it forward. That's a large part of the idea of stimulus.

NEARY: Yeah. What about - let me ask you about this. You said your original idea was in terms of what would qualify something as a clunker, and that was emissions versus mile per gallon.

Prof. BLINDER: Right.

NEARY: It's been enacted obviously based on miles per gallon. So do you still think it has had a positive environmental impact, even though it's not exactly what you had originally thought it should be?

Prof. BLINDER: Sure. I think it has. The numbers I've been reading in the newspaper suggests something - this is from memory, so it won't be exactly right - that the average car traded in or destroyed, I should say, has had miles per gallon of about 16, and the average of the ones purchased has more, like, 26. More fuel-efficient cars are obviously less polluting. So I think it has had something of that effect, absolutely.

NEARY: Yeah. And about that destroying of the cars, I don't think that's what you envisioned either. According to the op-ed that I read, you suggested that the cars could be recycled as scrap or refitted with emissions control. And instead, they're being destroyed. Is that a good idea? That's been criticized.

Prof. BLINDER: Well, it could be - yes. I think they are being recycled as scrap. I don't know what happens to these engines. They've destroyed the engines.

NEARY: They destroy the engines, right.

Prof. BLINDER: Right. And that's a good thing. You may have read that in Germany they forgot to do that and they find a lot of these cars are getting smuggled out to poorer European countries where they continue to belch pollutants. So it defeats one of the ideas.

So I had said two options, exactly as you said, scrap them, which is what's being done, or retrofit them with cleaner technologies. That's more expensive, obviously, and the government chose not to do that.

NEARY: We are talking with economist Alan Blinder about the Cash for Clunkers program. If you've had some experience with it - as a buyer or a seller, a mechanic, even - give us a call. The number is 800-989-8255.

We're going to take a call from Noel(ph) in Nashville, Tennessee. Hi, Noel.

NOEL (Caller): Hi, this is Noel in Nashville. I would like to take advantage of the Cash for Clunkers program, but my clunker gets too good of gas mileage. It gets almost 30 miles to the gallon. I'm an environmentally conscious person and I would love to turn this car in for a vehicle that got 50 or more miles per gallon.

It seems to me that the program would be better designed if instead of just, say, raw number, four miles per gallon, that there was a certain difference. If you had - your new car to get eight miles more to the gallon or something like that. That's my suggestion.

NEARY: All right. Thanks so much. Alan Blinder, why don't you respond to that?

Prof. BLINDER: Well, I certainly agree with that. It's perfectly consistent. What I was saying before, in fact, I would have gone one step further, as I said, and keyed it to emissions. But Noel was exactly right. The crucial thing is the improvement you get from the older vehicle to the newer vehicle.

NEARY: All right. Thanks so much for your call, Noel.

NOEL: There are a lot of people who are turning in a 18 miles an hour gallon for 22, and that…

Prof. BLINDER: Right.

NOEL: …just doesn't seem like enough of an environmental improvement to justify the use of public resources.

NEARY: All right. Good point, Noel.

NOEL: Thank you.

NEARY: That's a really good point. I mean, I think that's…

Prof. BLINDER: Yup.

NEARY: I don't know if that's the most common thing that's happening, but certainly it's happening.

Prof. BLINDER: It's not the most common. The numbers are more like to 10-mile per gallon difference. But Noel's exactly right. When I saw the legislation being drafted, and you could only go from - you could get it from going for as little as 18 to 22. And by the way, even less for a truck. That just seemed wrongheaded to me.

NEARY: All right. Let's go to Ken(ph) calling from Mobile, Alabama. Hi, Ken.

KEN (Caller): Good evening, panel. But - what I'm concerned about is the accountability on this because, in particular, we noticed a personal experience where the vehicles traded in the Cash for Clunker and that same vehicle was, within three weeks, back on a used car lot, the Buy Here Pay Here lots that call the dealerships for used vehicles. So I think there need to be some strict accountability.

NEARY: Now, you saw that yourself? Is that what you're saying?

KEN: Yes. Precisely. That same vehicle, I mean, we identified it with the VIN number. So I'm not so sure what the level of accountability they have on these dealers that disable the cars after that disabling whether it's, you know, very easily be sold. And then the disabled part of it easily, you know, turned back around and then put For Sale on a used car.

NEARY: Okay. Thanks for your call, Ken. Professor Blinder, what do you know about that? Do you know about the accountability that's built into this?

Prof. BLINDER: There is a contractual agreement between the dealers that are participating in this that they will destroy, as we are saying before, destroy the car, which basically means destroy the engine, make it nonfunctional and scrap the vehicle. Now, it sounds like in that instance, the dealer didn't do what he or she was supposed to do, which is certainly unfortunate.

You know, there's never been a program devised in either the public or the private sector that has 100 percent compliance rate. And if the facts are, as your caller says, this is a violation of the terms.

NEARY: All right. Let's go to Michael(ph) calling from the Twin Cities. Hi, Michael.

MICHAEL (Caller): Hello.

NEARY: Go ahead.

MICHAEL: You know, I work in a car dealership. And one of the things we found out about this program is it's great for the consumer, but for the dealerships, it's a nightmare. I mean, they've made this like, terrible. It's terribly complicated. There's no instruction. There's no guidance and it's really difficult for the dealer.

At one point, we decided that, you know, if their money runs out, that's great because it's just too much of a pain.

NEARY: You mean, just the bureaucracy of it, you're saying?

MICHAEL: Oh, yeah. Absolutely. You wouldn't believe the paperwork that has to be filed for this.

NEARY: Well, I guess, Alan Blinder, what's your take on that?

Prof. BLINDER: Well, I certainly believe what Michael said. The bugs may not be all out of this. This is a brand-new program. I guess I would just emphasize that it was designed to be great for the consumer, not designed to be great for the dealer. That said, there's every reason to make the bookkeeping as easy as possible, not as difficult as possible. I think as the program continues, and I think it will continue for a while - hopefully, some of these bugs will be - gotten out and it'll be simpler for the dealer as well.

NEARY: Michael, I also had the impression that car dealers were pretty happy at the number of cars that were being sold.

MICHAEL: Well, yes. But you'd have to go through the process of entering one of these cars. In order to submit one of these cars, it takes about four to five hours each car to submit all of the paperwork that needs to be submitted. And it got to the point where, you know, we were saying it, you know, it's not worth selling the car for the amount of headaches that this thing is causing.

NEARY: Yeah. All right, well, thanks…

Prof. BLINDER: That's a…

NEARY: Go ahead.

Prof. BLINDER: I was going to say that's the crucial point. I mean, if the government designs a program that is so complex that the dealers don't want to participate because it takes so much time, it's going to be a failed program. They need to improve it.

NEARY: All right. Thanks so much for your call, Michael.

And I want to remind our audience that you are listening to TALK OF THE NATION from NPR News.

Let's go to Dean(ph) from Iowa. Hi, Dean.

DEAN (Caller): Hi. I did take advantage of the program. I've traded in a '93 Dodge Caravan and picked up a Mercury Mariner hybrid. So I went from less than 18 miles a gallon to mid-30 miles to the gallon. And I wouldn't have done that if that program wasn't there. I would have fixed up the old car and kept her going.

NEARY: Well, there you go. That's an example of the successful side of this story.

Prof. BLINDER: That's what we want to hear. We want more Deans all over the country. That's exactly what we want. That's exactly the idea of the program.

NEARY: So, Dean, you would have kept driving - you would have kept driving your old car, you're saying? You would have just kept going with it?

DEAN: Yeah. Because all I did was drive it to work. And my wife had a better car. It's 9 years old, but she drives it to work and that's what we take on trips, so I wasn't too worried about it. But now, we turned it around. I got a better car now.

NEARY: All right. Well, good for you. Thanks so much, Dean.

DEAN: Thank you.

NEARY: Thanks for your call. Well, one other thing I wanted to ask you, Professor Blinder, that environmentalists - some environmentalists have concerns about the program, including that it's sort of motivating people to keep using cars. That maybe it doesn't save enough in terms of fuel and it motivates people to use cars instead of finding an alternative way of driving (unintelligible) transportation.

Prof. BLINDER: I think there's truth to that, as I said before, Lynn, when I originally made the suggestion. And also, by the way, the way it's been piloted in various states and some other countries, there were more choices for the individual turning in their clunker as to what to do with the cash. In particular, you didn't have to buy…

NEARY: Right.

Prof. BLINDER: …a new car. And I, you know, for environmental purposes, it clearly would have been better to design it that way. But the Congress was thinking much more stimulating auto sales. And that was the dominant feature in the design.

NEARY: And here's an email from David(ph) in Bowling Green. He says could we clarify just what percentage of cars bought on the program were made in the USA? Just what agreements would prevent the federal government from mandating that the cars bought on the program be made in the USA? I really don't like my tax dollars subsidizing the purchase of foreign-made cars. There was nothing…

Prof. BLINDER: Well…

NEARY: …in there about that that as I understand, was there?

Prof. BLINDER: I don't believe so. In the end, there was an early draft of the legislation, and that was taken out, I believe. I mean, I wasn't there in the negotiation. It was taken out, I believe, because it violated our trade agreements.

Now, one thing I should - one thing that's important to say is I'm reading in the newspapers that a lot of these thing - these old cars are being traded in for Toyotas and Hondas and models like that. Most of those are made in America. They have foreign names. Toyota and Honda are names of Japanese families, but they're made in America. They're made in South Carolina and Tennessee and Ohio and Indiana and all sorts of places like that. So I think a lot of people will be surprised how many of these, quote, "foreign cars" are actually American made.

NEARY: All right. Let's go to William(ph) calling from Belvedere, California. Hi, William.

WILLIAM (Caller): Yes. Thank you so much. The previous caller just made a very important point, which related to the issue I wanted to raise, which was he had a car that he only drove occasionally and he traded it in on the Cash for Clunkers. Now, I've heard that half of all the pollution produced by an automobile, the CO2 and the other pollution, actually comes in the production of the car.

And so I'd appreciate the guest's perspective on whether if someone really doesn't drive a car very much, whether they're really helping the environment by trading it in and having a new car built for them, which the building of which actually creates a lot of pollution.

Prof. BLINDER: It's perfectly good question. I wish I had more engineering knowledge that I could answer more definitively how much pollution goes into the manufacture or is produced by the manufacture of a car. Certainly, some is. There's no question about it. The way I think about this mainly, however, is that these old polluting clunkers are going to be around for a period of time. And the whole idea of this program is to accelerate their demise.

It's not so much to have there be, over a long period of time, more cars built. But to pull it forward in time, as we were saying before, Lynn, and get those old - the older parts of our fleet replaced faster. I don't know the exact circumstances of Dean and his wife in Iowa. But my first guess would be that together they'll drive about the same number of miles next week as they did last week, but it'll be with, on average, cleaner cars.

NEARY: All right. Alan Blinder, thanks so much for joining us today.

Prof. BLINDER: It was great to be here. Thank you.

NEARY: Alan Blinder joined us from Princeton University, where he teaches economics. He wrote an op-ed for the New York Times in July 2008 called "A Modest Proposal: Eco-Friendly Stimulus."

Tomorrow, they are some of the most famous destinations and American cities. We'll look at the world of activity and culture that is the American Chinatown. That's tomorrow in this hour.

This is TALK OF THE NATION from NPR News. I'm Lynn Neary in Washington.

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