Of Clunkers and Windows

Sunday, while riding, I had an entrepreneurial idea which I’m also almost certain occurred in abundance in the cash-for-clunkers boondogle.  This enterprise would most likely be best employed by a car dealer, perhaps one who put his bottom line ahead of his “patriotic duty.” Imagine a car dealer has a potential customer who wants to buy a new car, yet has no clunker to turn in. Here is a way in which that most of that $4.5k windfall could aid that person in buying a new car. He follows the following steps:

  1. The initial ingredient is a person (person A), willing to buy a car with the help of $3.5k cash-for-clunker money in the absence of said clunker.
  2. First, locate a person (B) who owns a qualifying “clunker”, i.e., not-so-good gas mileage and has owned it for two years.
  3. Offer that person an exchange/upgrade car + $1000, which of might be used toward the purchase of said “upgraded” clunker.
  4. That same said person is “lent” the money is then (on the books at least) used purchase the new car that the person A wants and is purchasing. 
  5. Person B then “sells” car A (for a song and as agreed) to person A.
  6. Person A drives off with his car, which cost $3.5k less than negotiated originally.
  7. Person B drives off with a “new” used car. His original “clunker” is then turned to sand.
  8. The car dealer makes his commission on two cars (one used and one new).

If you don’t think this occurred with some frequency over the summer, you haven’t noticed that this is America … the land ruled by enterprising hucksters. The $1k/$3.5k split of course is illustrative and would vary in proportion as the market dictated. I’ll leave it as an exercise for the reader to defend this practice … or suggest how/why it is not possible given the current law. While it certainly violates the spirit of the law, I’m pretty sure a half-way competent lawyer could see a way to making it fit the letter of the law.

The Cash-for-clunkers hornswoggle has educated Americans in a practical lesson in Bastiat’s Parable of the Broken Window. This paradox/parable is one which the Keynsian’s would like to whitewash with talk of multipliers and other such nonsense, but the essential argument is largely untouched by that rhetoric, i.e., for the multiplier to be considered it is essential that the hidden costs implicit in their multiplier be ignored. The parable as recounted in the wiki piece above, excerpted is:

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented

This is the problem with the clunker. The taxed money which will be extracted from the public will not be able to be used for the various purposes to which they would have used those monies for, instead it is taken and used in this way. Very often that same said clunker gets just a few mpg more than the car it replaced, which then is scrapped … and the energy costs of production will take many years to recoup … so the net energy/pollution equation is likely for almost a decade … a loss in many if not most cases. Furthermore today, in the wake of cash-for-clunkers, we hear that the used car market is not difficult right now. The price of used cars is up and the availability of cars is down. There are few cars available … due to so many having been having silicate added to their engines. One might ask which whether the used car vs new car consumer is better or worse off financially relatively speaking in order to review who has been helped and who has been harmed by this policy.

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23 comments

  1. Boonton says:

    The $1k/$3.5k split of course is illustrative and would vary in proportion as the market dictated. I’ll leave it as an exercise for the reader to defend this practice … or suggest how/why it is not possible given the current law. While it certainly violates the spirit of the law,

    The spirit of the law is to take a clunker off the road and put a 22+mpg new car in its place. If I follow your hypothetical exchange correctly this seems to take place. Person B will end up buying a clunker at the end of the day to replace the one he gave up but since there are fewer 18mpg- clunkers in the market he will have fewer options. At the end of the day one clunker is destroyed and one new car is sold.

    I think the only hitch in your plan is that the individual doesn’t get $4500 to split, the $4500 comes off the selling price of the new car. Person A must put up $1,000 cash for person B, he cannot tap cash from the program.

    Although it does illustrate why the program was good as a temporary boost for car sales but shouldn’t be kept around. Leave something like this around long enough and people start gaming it…even though the particular game you suggest doesn’t seem very harmful I suppose other games will be more harmful.

    Here’s the problem with your broken window parable, the broken window is the intentional destruction of useful capital. That has never been part of any stimulus theory. Even the silliest example Keynes came up with, burying money in caves for businessmen to dig out, did not involve purposefully destroying productive capital. [BTW, this is a pretty imperfect stimulus program, its main goal seems to be a combination of a subsidy for new cars with some environmental goals some ‘energy independence’ for the Palinite mindsets and a bit of stimulus]

    The issue that you miss with the stimulus and multipliers is not destruction of capital but untilized capital. Everyone is shoeless because they have no money to buy shoes. They stand outside the shoe factory but it is not hiring because no one is buying shoes. So a bunch of barefoot unemployed shoeworkers stare a perfectly good shoe factory that is rusting away. It doesn’t take a genius to see that the obvious answer is if the shoe factory makes shoes people won’t be barefoot. Nothing is gained by people standing around barefoot for an extra year, two, three etc. waiting for the recession to grind its way to a natural end.

    A stimulus taps the unused capital (in this case unemployed shoe workers and shoe factories) which generates income which then generates more income (hence the multiplier). This doesn’t work outside a recession because if the economy is ‘normal’ there are no unemployed workers or factories (only unemployed factors that are ‘adjusting’ to the market). In that case a stimulus would be counterproductive in that it would have to force down one productive element (say taco factories) to boost another one (shoe factories).

  2. Mark says:

    Boonton,

    I think the only hitch in your plan is that the individual doesn’t get $4500 to split, the $4500 comes off the selling price of the new car. Person A must put up $1,000 cash for person B, he cannot tap cash from the program.

    Incorrect, he can “put up the $1k” from the discount on the car for Person A. And it’s interesting that you assume this didn’t happen. Why?

    Here’s the problem with your broken window parable, the broken window is the intentional destruction of useful capital.

    Like a car? Oh, wait, one of those is destroyed in $fC.

  3. Boonton says:

    I’m not sure how he can put up the $1K from the discount on the new car, unless he plans to sell the car at full value to turn the discount into a profit…it’s not a huge deal if the person had $1K in cash to begin with that he was willing to put as a down payment anyway…. I think the larger problem is the search costs and the risk that person B may decide to keep the new car after all leaving A with having to mount a legal battle to get his money back. This is starting to look like that Seinfeld episode where they get a ride to Maine and decide to try to ‘profit’ by capturing that states $0.10 bottle recycling bounty versus NYC’s $0.05.

    By definition person B’s clunker has to be worth no more than $1,000. If it was worth more, person B would demand either a bigger cut of the discount from A or he would simply sell the car himself. So this clunker has to be worth $1,000 or less.

    So in terms of capital destruction here your gaming case is actually better than average. With no games we know used cars worth as much as $4500 can get destroyed. Your case there’s a ceiling.

    Like a car? Oh, wait, one of those is destroyed in $fC.

    As I pointed out the destruction of the used cars is not stimulus but environmental/oil independence policy to get ‘clunkers’ out of the fleet. Look at an alternative program. First time home buyers get a tax credit of $8000 for buying a home this year. Note no destruction of existing homes is required.

  4. Mark says:

    Boonton,
    Person A doesn’t get to back out of the deal because the transaction of buying and selling the new car to person A and the car to person B is done by the dealer.

    I don’t see how the value of the clunker has any bearing on the matter. Seller B gets to either trade his car in for an equivalent car (or use the $1k to get an upgraded vehicle). The only way person B can sell the car himself to get the $4.5k cash back deal is if he can afford the about 20-30k for a new car. This deal gets person B a better used car and possibly some cash as well for no money and person A gets a few thousand off on a new car. Of course in the gaming case … because person A doesn’t have to be involved … there just has to be a sale of a new car by someone not engaging in cash/clunkers. Then with some creative accounting and a seller B the dealership can apply for the $4.5k government largesse.

    Cash for clunkers was always also a stimulus for Detroit. The other part of htis policy is a gift horse for the upper middle classes at the expense of the poor.

  5. Mark says:

    Boonton,
    And the environment is a wash … the destruction of the car its disposal + the environmental impact of a new car will take a long long time for the marginal oil + pollution to match.

  6. Boonton says:

    The disposal of the old car has to happen eventually no matter what so the environment is not a wash (I think you are overestimating how much energy it takes to dispose of a car, though). The difference then is what would have been consumed by the destroyed car minus the consumption of the newer, more efficient, car.

    Seller B doesn’t get money for nothing, he has to give up his car. Hence the value of the clunker does matter. If the clunker is worth $5000 he would be better off selling it himself. If it was worth $3,000 he wouldn’t do the deal with A for just getting $1,000.

    You also forget A has loaned B enough to buy the new car with the discount. The dealer cannot force B to sign over the car to A even if B does owe A the money. A suffers from the risk that B will stiff him and the cost of the lawyers to resolve it will kill his savings.

    Another more complicated issue is that cars have a wide spread between bid and ask prices. In other words if you’re driving a clunker that is ‘worth’ $1000 it probably requires $1500 to replace that clunker with something equivalent. With cars there’s the problem of lemons in the market. As a result it’s not so easy to just buy and sell cars for a profit as if they were stock. So for this complicated deal to make sense for B, he has to get more for giving up his car than simply the value he would get if he simply sold it himself. This means either the car is worth less than $1,000 or B is going to pass on more to him than $1,000. Either way we either have really cheap clunker here or A is going to let even more of his savings get squeezed.

    I noticed you didn’t comment on my other point. Even if this game works it essentially serves the spirit of the law. A clunker is taken off the road and a new car is sold. That this game only seems to work when the clunker is very low in value actually seems better.

  7. Mark says:

    Boonton,

    You also forget A has loaned B enough to buy the new car with the discount. The dealer cannot force B to sign over the car to A even if B does owe A the money. A suffers from the risk that B will stiff him and the cost of the lawyers to resolve it will kill his savings.

    As I said this was taken care of in the fact that the “loan/sell” process was not done explicitly by B but in the paperwork of the dealer.

    But I see your point on the value of the clunker … I was thinking of the clunker sale as a trade in, which it is not, because the clunker is being converted to 0 value … and not a normal trade in.

    If the clunker is worth $5000 he would be better off selling it himself. If it was worth

    That’s right. This is only going to be attractive for someone with a real clunker. If he has a $5k car however, he can’t afford a new car because with $fC he cannot get any trade in value … so the problem of a higher value trade in is present for all clunkers. That is the cash for clunkers deal is only interested in all cases for cars that have essentially zero trade in value.

    The disposal of the old car has to happen eventually no matter what so the environment is not a wash (I think you are overestimating how much energy it takes to dispose of a car, though).

    Uhm, I wasn’t thinking so much of the energy that would be saved but the pollution factor involved in the disposal.

  8. Boonton says:

    I think pollution in disposal can be pretty minimal. Where do we get more pollution, the millions of cars locked away in graveyards or the millions of cars that are running every day? Either way, though, disposal is a fixed and unavoidable cost that has to be paid eventually no matter what so I wouldn’t net it against the pollution avoided by switching to a better car….unless you think the clunker turned in would have been driven forever and ever…

    As I said this was taken care of in the fact that the “loan/sell” process was not done explicitly by B but in the paperwork of the dealer.

    I suspect the law requires the dealer to register and title the new car in the name of B since B is getting the $4500 voucher. To do that B is also going to need to put insurance on the car (which may add yet another expense). The moment that happens I don’t think the dealer can legally stop B from driving out of the showroom with his new car.

    This leads to problem #2, how is A paying for this car? It isn’t through a bank loan since the bank is going to demand a clear and unquestioned title to the car. A is going to have to be able to fund the entire purchase through cash which is yet another factor making this game a bit harder to pull off than appears at first sight.

    That is the cash for clunkers deal is only interested in all cases for cars that have essentially zero trade in value.

    Well trade in value of less than $4500. If you have the $1K car it makes sense to score $4500 for it via clunkers than simply $1K through a trade in. Of course I wouldn’t trust what dealers say is a ‘trade in value’. I can see dealers offering more than a car is worth in a trade in just to make the sale… In other words without the program, a dealer might offer you $5K on your used clunker. In reality the car is only worth $3K to him but he is adding another $2K to help make the sale. Psychologically he figures you are more happy to hear you’re getting an extra $2K for your old car rather than him saying he will just take $2K off the price. With clunkers he may give you the $4500 program AND take $2K off the price (since the $4500 is coming from the gov’t) giving you $6500 in savings rather than just $5,000.

  9. Mark says:

    Boonton,

    To do that B is also going to need to put insurance on the car (which may add yet another expense). The moment that happens I don’t think the dealer can legally stop B from driving out of the showroom with his new car.

    It is unclear why B ever is told of the existence/identity of buyer A or what car he is buying by the dealer. What would motivate the dealer to do that?

    This leads to problem #2, how is A paying for this car? It isn’t through a bank loan since the bank is going to demand a clear and unquestioned title to the car.

    Many people finance their car (initially) via the dealers bank. In which case the title problems can be hidden and I suspect that can be dealt with in either case.

    I think pollution in disposal can be pretty minimal. Where do we get more pollution, the millions of cars locked away in graveyards or the millions of cars that are running every day? Either way, though, disposal is a fixed and unavoidable cost that has to be paid eventually no matter what so I wouldn’t net it against the pollution avoided by switching to a better car

    You’re still not dealing with the broken windows/hidden costs problem. You are pushing more cars into graveyard/disposal prematurely. You are trying to deny that pushing more cars through the pipeline has environmental costs. That’s pure nonsense and you know it.

    I can see dealers offering more than a car is worth in a trade in just to make the sale… In other words without the program, a dealer might offer you $5K on your used clunker.

    The exercise above is to connect clunker owners who can’t afford a new car (which is a large subset of “clunker” owners I suspect) with those people who can afford new cars (and the subset of those who don’t own a clunker).

  10. Boonton says:

    It is unclear why B ever is told of the existence/identity of buyer A or what car he is buying by the dealer. What would motivate the dealer to do that?

    OK maybe I’m getting this wrong…. A wants to buy the new car but doesn’t have a clunker. B has a clunker but can’t or doesn’t want to buy a new car…..

    Now if that was all there was to it, B could sell his clunker to A and A could turn it in for $4500. But the program requires the buyer to have had the clunker registered and insured for at least a year before buying the new car (this is to prevent people from buying $50 junk cars from the scrap yard and towing them into the new car dealership for $4500).

    So your prosposal, if I follow correctly, is A could lend his money to B to buy a new car. B could then turn around and give A the new car to pay off that debt. For his trouble, B gets a portion of the $4500 discount as cash (say $1,000) to compensate him for his clunker.

    The problem here is that how is the dealer going to title and register a car in B’s name without his signature?

    Many people finance their car (initially) via the dealers bank. In which case the title problems can be hidden and I suspect that can be dealt with in either case.

    True the dealer can front the money here but you have the same title issue. Auto financial institutions like GMAC sell their loans to Wall Street. In order to sell their packaged loans they need to meet certain standard criteria like all auto loans are backed up with a clear title lean (just like packaged mortgage loans, not matter how complicated their trenches, must at the end of the day lead back to a clear title of an existing house). If the dealer is using his own cash but what he is doing is loaning B money to buy a new car. If B’s a bad credit risk what recourse does the dealer have in going after A? It seems like the dealer is going to demand a piece of this action too….so now you are giving B $1,000 and the dealer is getting $1,000…….A is losing a huge portion of that $4500 voucher/discount/incentive.

    You’re still not dealing with the broken windows/hidden costs problem. You are pushing more cars into graveyard/disposal prematurely. You are trying to deny that pushing more cars through the pipeline has environmental costs. That’s pure nonsense and you know it.

    Now we are really getting somewhere. What this is about is externalities. The premise is that there is a cost to burning gas that is not captured in the price you pay at the pump. This cost is the environmental cost and the national security cost (I think the former is more important than the latter but leave that aside for now). Now imagine we had a team of very smart economists tell us that this cost is exactly $0.50 a gallon and this calculation is 100% accurate. Imagine this was immediately enacted as a gas tax (or a cap-n-trade system that resulted in the same thing).

    Well what would happen is that clunkers will loose some of their value. Why? Because the cost of operating them has gone up. Some clunkers that were worth $1,000 or $1,500 are now in the red. They will be disposed of.

    Of course this goes in the opposite direction too. If the gov’t subsidizes the price of gas clunkers will be valuable longer. Countries that set price caps on gas (say Iran) or who subsidize the domestic gas price (Saudi Arabia) will see clunkers kept in service longer.

    Now we don’t have a team of very smart economists who can calculate the externality costs of burning gas without debate and as I pointed out people like you won’t let us do a more simple policy of a gas tax or cap-n-trade. So some cars will be pushed into the graveyard ‘prematurely’ but only because there’s an artificial subsidy on those cars because the true cost of operating them is not built into the market.

    As I pointed out, a gas tax is far more efficient since it allows a much more diverse range of adjustments (i.e. carpooling, telecommuting, mass transit etc.). But there are at least some limits on how wasteful this program can possibly be:

    1. Any car worth more than $4500 won’t be destroyed since it is more valuable to sell it. So the most that can be wasted is $4500 a car. In reality a car that’s worth close to $4500 is less likely to be turned in as part of the program since the owner is more likely to think *maybe* he can sell it for more than $4500 (there’s uncertainity in regards to the value of cars). So most clunks turned in are likely to be in the lower bounds of $0-$4500 rather than the upper.

    2. The engine is destroyed, so clunked cars can recover the value of non-engine parts as well as the scrap value of the engine itself (metal).

    So the waste is going to be:

    Current car value –
    Adjusted car value (if the external costs of burning gas was reflected in car prices) –
    scrap value for the junked car.

    Worse case would be a car currently worth $4500 and there being $0 external costs to burning gas and the car has $0 scrap value…..this is unlikely IMO. I think most cars turned in will be around the halfway mark so their current value is going to be like $2,250. Even if you believe CO2 based global warming has 0% chance of causing any harm its hard to believe there are no externalities in gas prices and its hard to believe a clunked car has no scrap value. All in all the deadweight loss here is probably quite small per car.

  11. Boonton says:

    The exercise above is to connect clunker owners who can’t afford a new car (which is a large subset of “clunker” owners I suspect) with those people who can afford new cars (and the subset of those who don’t own a clunker).

    Do you find it ironic that this exercise is likely to actually improve the program by ensuring clunked cars are actually much more clunkier?!

    You are trying to deny that pushing more cars through the pipeline has environmental costs.

    I think the time factor here is pretty marginal. The environmental costs of disposing of a car are trivial IMO. Once you ensure the fluids are contained you can let a car sit in a graveyard until it turns to dust.

    The cost of melting down a car is best looked at in terms of the scrap versus new product decision. If you need metal, for example, what is the environmental cost of melting it down in the scrap yard versus mining it raw from the ground. Most of the time its going to be a smaller environmental cost for the former…..but should a mine materialize that is exceptionally low-environmental cost then instead of scrapping junk cars they can be “graveyarded”, essentially left to rust to dust for low envirnomental cost.

    So in terms of this program you accelerate a pretty marginal environmental cost (disposing of a car a few years earlier than you otherwise would have). The pushing of the new car through the pipeline was going to happen anyway so again the cost is in the present value of the acceleration. In order for this to be a source of a major environmental cost you need a very high discount rate.

    The only way this makes sense to me is if a major breakthru is looming just over the horizen. If 3 years from now someone invents the car that runs on water…..all those 2009 cars that get 27mpg will seem like a waste….. Better to have held onto the 1990 15 mpg ‘clunker’ for 3 more years and then upgraded to the new ‘water car’. Possible? Yes but not extremely likely imo.

  12. Mark says:

    Boonton,

    So your proposal, if I follow correctly, is A could lend his money to B to buy a new car. B could then turn around and give A the new car to pay off that debt. For his trouble, B gets a portion of the $4500 discount as cash (say $1,000) to compensate him for his clunker.

    The problem here is that how is the dealer going to title and register a car in B’s name without his signature?

    The real motivated person in this deal is the dealer. He wants to make it easier to get buyer A to purchase a car. Person A does not own an eligible clunker … but it likely a dealer can locate persons like B (who are willing to sign an extra piece of paper without asking too many questions “this is the title page” “this is a second title transfer page yada yada” and so on). Buyer B “buys” and transfers title in one exchange. He never knows about the car destined for A. If sports franchises can make 4 team 10 player deals … this certainly seems a lot simpler and more straightforward. Why are you suggesting it is impossible?

    In part, the point here was that I am admittedly a non-canny capitalist, yet in a few moments of oxygen deprived haze I came up with a way a buyer or dealer could game the system to get this benefit when he wasn’t the target. I’m guessing actually canny fellows, i.e., car dealers, found ways to game that $fC program in ways I haven’t considered.

    Have you ever heard the slogan used by the eco crowd, “reduce, reuse, recycle” I think they are right not to insert, “scrap for marginal benefit” because the cause of mfg and disposal swamp the marginal benefit. This is the case here. Your argument that you are getting said clunkers of the road because they won’t be around much longer anyway runs up against the argument that … they won’t be on the road much longer anyway.

    The premise is that there is a cost to burning gas that is not captured in the price you pay at the pump. This cost is the environmental cost and the national security cost (I think the former is more important than the latter but leave that aside for now).

    While I think the latter is more important than the former … it is indeed why I own cars getting 50 mpg and better. I bought my high mileage cars used. Which is a better variant of the cash/clunkers program. Cash for upgrade … and the discount/payback should be larger if the car is not new, for then it has 0 environmental impact to own.

    The pushing of the new car through the pipeline was going to happen anyway so again the cost is in the present value of the acceleration. In order for this to be a source of a major environmental cost you need a very high discount rate.

    I’m curious. I had a post reflecting on my current car (61/71 city/hiway official mpg … I get an estimated ~65/80). I noted that one criteria I’ve had on car purchase is that I want to improve, significantly if possible) the mileage I get when moving to a new car. How long will I have to wait before a commercially available car will exceed 80mpg highway? You suggest 3 years is impossible. 10? 5? What do you expect? That car is old now, it’s a 2000. At some point keeping it running is going to get comparable in expense to getting a new one. Will the market or entropy win that race?

  13. Boonton says:

    The real motivated person in this deal is the dealer.

    Yes but follow the money….A gives his money to B, B gives the money to the dealer. The dealer has made his sale and has his money. A has a collection problem. I think this type of bargain with A & B would take place not so much with the dealer playing matchmaker but A & B having a close and trusting relationship, like family members. Still the effect seems to be within the spirit of the law. A clunker that was on the streets goes off and a new car sale is made.

    I’m guessing actually canny fellows, i.e., car dealers, found ways to game that $fC program in ways I haven’t considered.

    It would appear with the rush of demand from actual people with clunkers combined with deep discounts from the auto companies struggling to boost sales and with the extensive paperwork required of the program and finally with the relatively short window the program was available (even after getting extended)….I suspect few complicated side deals were done. But I suppose time will tell.

    Your argument that you are getting said clunkers of the road because they won’t be around much longer anyway runs up against the argument that … they won’t be on the road much longer anyway.

    Either way the cost appears pretty capped in terms of the environment (barring a huge discount rate). Real fast going from 18mpg to 22 mpg (the trade that is the least beneficial to the environment possible under the program) still drops the number of gallons needed to drive 1,000 miles by about 10. Accelerating the scrapping of the clunker by several years…assuming 15K miles per year saves 150 gallons of fuel per year. The environmental costs seem trivial. Scrapping a car today is almost certainly going to take the same amount of fuel as it will in 2-5 years. Likewise building a car today probably is around the same in terms of fuel consumption as it will be in the future (a big environmental discount would require a massive improvement in manufacturing to be implemented very, very quickly).

    While I think the latter is more important than the former … it is indeed why I own cars getting 50 mpg and better. I bought my high mileage cars used. Which is a better variant of the cash/clunkers program. Cash for upgrade … and the discount/payback should be larger if the car is not new, for then it has 0 environmental impact to own.

    Well the program was tiered so that to get the full 4500 you had to upgrade by a full 10 mpg. Less and you only got $3500. But it seems like if you did a cash for upgrade program you’d still need to insist on having the old cars destroyed otherwise you’re increasing demand for high mpg cars but also increasing supply of low mpg cars. The point is to actually increase the average mpg of the US fleet and lower the amount of gas burned.

    I’m curious. I had a post reflecting on my current car (61/71 city/hiway official mpg … I get an estimated ~65/80). I noted that one criteria I’ve had on car purchase is that I want to improve, significantly if possible) the mileage I get when moving to a new car. How long will I have to wait before a commercially available car will exceed 80mpg highway?

    They are already talking about cars in the 300+mpg zone….but at what cost? At 67 mpg I get 15 gallons to go 1000 miles. At 80mpg I get 12.5. Assuming your old car was in the 20mpg zone you didn’t miss much by failing to hold out for the 80mpg model. Going from 20mpg to 67mpg was a massive improvement shaving 35 gallons off your 1,000 mile trip. Going from 67 to 80mpg only shaves 2.5 gallons off your 1000 mile trip. Let’s say you go 15,000 miles per year. Saving 2.5 gallons is only 37.5 gallons per year which at $3 a gallon is $112.50. If the 80mpg car cost you $10,000 more you’d need over 88 years to pay back the additional investment.

  14. Mark says:

    Boonton,
    On the last part, this again demonstrates why the l/100km (or a non-metric equivalent) is much better. Its interesting that you immediately resort ot the inverse (linear) measure when wanting to talk about efficiency … which is why the inverted units we use should be abandoned.

    You didn’t answer the question, i.e., when will I be able to replace my 3-4 l/100km car with (a stock commercial) one that gets better mileage (like a 2 litre)? Will I be able to do so before entropy kills my 9 y/old car? My Insight replaced a Saturn SL which got ~8 litres (35mpg). Another doubling would be nice. 😀

    I realize replacing it isn’t going to be done economically based on gas consumption before the old one “wears out”. The question I have is, when it does wear out, will I be able to get one that gets better mileage. Right now I cannot. The replacement would have to get worse mileage. There are no cars available that get better mileage (and I don’t think a 3 wheel Aptera will handle well enough in Chicago winters). You avoided answering the question the first time, I’ll give you another chance to make a prediction.

    But it seems like if you did a cash for upgrade program you’d still need to insist on having the old cars destroyed otherwise you’re increasing demand for high mpg cars but also increasing supply of low mpg cars.

    That’s right, you’d have to destroy the car. But the advantage here is that you’re basically culling out low mileage cars from the used car pool … and at the same time avoiding the much higher (than the incremental gain in gas/pollution) environmental costs of production.

    They are already talking about cars in the 300+mpg zone

    Where?! VW had a small two seater that got 240mpg that may even be in limited production. I have no doubt it will never see the US shores. Do you have links or data on 300mpg cars? I read a few auto blogs and have not seen any 300mpg cars. I did like the looks of the 3 seater Diahatsu (sp) UFE III (it was my desktop wallpaper for a while) … but that was a concept car and supposed to get 140 mpg (2 l/100km) with a 300cc gas engine/electric hybrid.

    I think electric hybridization is a dead end or a wrong move. I think the environmental costs of battery production/replacement coupled with energy losses in the charge/recharge cycle make it less attractive than air or today’s very large capacitors, which admittedly hold less energy … but to recoup braking energy for your restart (or for to give the engine a boost) you don’t need a large energy reservoir.

  15. Mark says:

    Boonton,

    Yes but follow the money….A gives his money to B, B gives the money to the dealer.

    I don’t see that A or B interact at all. A gives money to the dealer, B trades cars (and might get some money from the dealer). B never sees A. Dealer, if less honest, might mislead A and B as to who is getting the $4.5k and pocket much of it himself as a brokerage fee.

    ccelerating the scrapping of the clunker by several years…assuming 15K miles per year saves 150 gallons of fuel per year. The environmental costs seem trivial. Scrapping a car today is almost certainly going to take the same amount of fuel as it will in 2-5 years. Likewise building a car today probably is around the same in terms of fuel consumption as it will be in the future (a big environmental discount would require a massive improvement in manufacturing to be implemented very, very quickly).

    You are either pushing more cars though the pipeline quicker or you are not. If you are not, you are wasting money. If you are, there is an increased environmental cost of production and disposal (and you argue the former is much larger and the latter insignificant). The point is there is a cost to the increased production which likely is similar in size to the environmental benefit.

    But I suppose time will tell.

    ?? Who will tell? How would that come out?

  16. Boonton says:

    On the last part, this again demonstrates why the l/100km (or a non-metric equivalent) is much better. Its interesting that you immediately resort ot the inverse (linear) measure when wanting to talk about efficiency … which is why the inverted units we use should be abandoned.

    They are both valid metrics but have to be used properly. You asked about the new cars pushing higher and higher up the MPG scale. Yes they are but their benefit to you becomes less and less. Going from 20mpg to 67mpg saves you 35 gallons per 1000 miles. But when you get down to, say, 12.5 gallons per 1000 miles there’s not much savings left. If someone invents a car that runs on water and burns no gas….you still are only going to cut out 12.5 gallons of gas per 1000 miles.

    But there are cases where mpg makes sense as a metric. Say, perhaps, you’re a taxi company and you push your vehicles as much as possible. Your focus may be less on “how do I minimize the cost of my daily commute to work” and more on “how do I squeeze as much driving as possible out of every gallon of gas I have to buy?” From that POV mpg might make more sense to look at….esp. if you have a fleet of different types of cars with different mpgs.

    That’s right, you’d have to destroy the car. But the advantage here is that you’re basically culling out low mileage cars from the used car pool … and at the same time avoiding the much higher (than the incremental gain in gas/pollution) environmental costs of production.

    I’m not sure you’re right here. A cash for upgrade program would still increase demand for new cars because it would shift demand all along the spectrum from clunkers to used cars to slightly used to brand new. Even if the program was limited only to upgrading to non-new cars it would still shift the demand curve upward and result in increased auto production.

    Where?! VW had a small two seater that got 240mpg that may even be in limited production. I have no doubt it will never see the US shores. Do you have links or data on 300mpg cars?

    I could have sworn I saw it in Wednesday’s Wall Street Journal Personal section.

    I think electric hybridization is a dead end or a wrong move. I think the environmental costs of battery production/replacement coupled with energy losses in the charge/recharge cycle make it less attractive than air or today’s very large capacitors, which admittedly hold less energy … but to recoup braking energy for your restart (or for to give the engine a boost) you don’t need a large energy reservoir.

    You may be right…then again you might be wrong esp. when you consider that you can offload some electric production to the more efficient grid via plug-ins. And you’re missing a lot of ‘outside the box’ ideas. For example, suppose you can work from home 1 day a week in exchange for a $1,000 a year pay cut. This can cut your gas consumption 20%….yet if you spent $10,000 more on a car that did the same thing you’d need 10 years to make the payoffs!

    A single price is the most efficient way of processing such huge amount of information. This is why a tax or cap-n-trade are far more efficient for handling an externality.

    I don’t see that A or B interact at all. A gives money to the dealer, B trades cars (and might get some money from the dealer). B never sees A.

    If a bank loan is involved they are probably going to want to see where the money is coming from and going too…

    If you are, there is an increased environmental cost of production and disposal (and you argue the former is much larger and the latter insignificant). ?? Who will tell? How would that come out?

    This is a fascinating program from an economic perspective. I imagine it will be the subject of quite a few papers for some time.

  17. Mark says:

    Boonton,

    our focus may be less on “how do I minimize the cost of my daily commute to work” and more on “how do I squeeze as much driving as possible out of every gallon of gas I have to buy?” From that POV mpg might make more sense to look at….esp. if you have a fleet of different types of cars with different mpgs.

    How is the inverted units (mpg) more useful in this case? Multiplicative and additive comparisons work from the l/100km units but only multiplicative ones work with mpg.

    Googling 300 mpg gives only Aptera (which as I noted might not handle so well on icy roads).

    Big electric generators/motors can be very efficient. But you have to add transmission losses, battery storage (chemical) losses, and the small electric motor’s (greater) inefficiencies as compared to the gas (or diesel) engine. I’m not quite sure “more efficient grid” is right in the big picture.

    Re, Gas tax/cap-trade …. again, adding taxes in a weak economy in any case … likewise it also puts into question the broken window problem and the $forC program.

  18. Boonton says:

    Big electric generators/motors can be very efficient. But you have to add transmission losses, battery storage (chemical) losses, and the small electric motor’s (greater) inefficiencies as compared to the gas (or diesel) engine. I’m not quite sure “more efficient grid” is right in the big picture.

    Well remember you only care about importing oil not the environment. From that POV using the grid displaces oil in favor of coal, nuclear, and gas but very little oil. I suppose using natural gas for electric raises its price which might push people into using oil to heat their homes….but for the most part I think from the import focus the grid is a net plus.

    Re, Gas tax/cap-trade …. again, adding taxes in a weak economy in any case … likewise it also puts into question the broken window problem and the $forC program.

    So simply offset the tax increase with a tax cut somewhere to make it revenue neutral.

  19. Boonton says:

    BTW, I think you’re right about the metric….but why don’t we just use Gal / 1000 miles since that seems to be where the literature is heading and it’s easy to work with mentally in the US since that’s how we buy gas and measure distance.

  20. Mark says:

    Boonton,

    Well remember you only care about importing oil not the environment. From that POV using the grid displaces oil in favor of coal, nuclear, and gas but very little oil.

    Yet you care about CO2 and pollution … which makes coal (our major source of electricity) problematic.

    It is my understanding that much (most) of the non-urban areas and the NorthEast use oil for fuel instead of methane (fuel oil #2 -> same as is used in diesel engines and I think similar some of the JP (jet fuel) products). That’s why the diesel prices rise in the winter.

    Our grid is running at or close to capacity now, btw.

  21. Boonton says:

    True, so our goals overlap but not perfectly.

  22. Mark says:

    Boonton,
    But, it is poor planning if you introduce a tax … which moves people to stress grid and cause rolling blackouts or worse. It is better to anticipate moves, increase capacity before you try to stimulate a demand for the same.

  23. Boonton says:

    Here’s the problem, this is too much information for you or anyone else to asorb and trust that we can correctly process. You introduce a tax and prices adjust accordingly. Electric costs less at night time. If the grid is stressed grid owners will pay customers to install smart meters that can switch on charging to night….maybe even pull the charge out of a connected car should there be a sudden spike in demand. Likewise higher electric rates mean higher capital reward for building on more capacity and so on.

    You aren’t going to anticipate moves and even if you could you’d have to implement your wisdom in the face of political pressure. Prices are so much better.