Friday Highlights

Good morning.

  1. A book reviewed.
  2. VAT considered. The bigger problem with VAT is that the Congress critters considering VAT aren’t thinking of it as a replacement but an addition.
  3. A book list.
  4. Clunkers. A bad idea then, worse in retrospect.
  5. Oil in them thar hills.
  6. What airline I wonder?
  7. Beslan.
  8. Lies, damn lies, and statistics.
  9. Weather is not climate. Climate is not climate
  10. The Administration and yet-another-broken-promise.
  11. Another look at unemployment numbers
  12. Prayer as image.
  13. The Discovery nut as right winger meme.
  14. Statistics and schools. 

9 Responses to Friday Highlights

  1. #4 Clunkers

    Not quite buying it. The editorial argues that used cars are now more expensive because the cash for clunkers program took a lot of good used cars off the road.

    http://www.dot.gov/affairs/2009/dot13309.htm provides some final stats and let’s add some economic theory into the mix:

    1. 700,000 vehicles were taken off the road. There are about 62 million registered vehicles in the US and about 6.4 unregistered ones that are functioning. That’s about 1.1% of the US ‘fleet’. According to http://www.worldometers.info/cars/, wordwide car production ranges between 40-50million per year. (Granted not all of that belongs to the US but a large portion does).

    2. The cash portion of the program was $4500. Right off the bat the incentive here is pretty much capped. A good used car is worth more than $4500 so if you had one it would have made more sense to sell it rather than cash it in. Even under $4500, though, it still makes sense to cash in the worse cars. A junker worth no more than $500 yields $4000 profit. But one that’s not too bad that’s worth $4400 yields only $100 in gain. Clearly its more likely that the junkiest junkers were taken off the road first under the program. That’s important because the junkiest junkers aren’t much in terms of supply to hold down the price of used cars. The big fear with the cash for clunkers program was not people cashing in perfectly good cars but people pulling junk cars out of the scrap yards and cashing them in as workable clunkers. The amount of capital destroyed then is a lot less than the editorial implies.

    3. According to the dot the average car in the program got 15.8 mpg and was replaced by a car that got 24.9 mpg. Or using the better metric of how many miles to go 100 miles, the average clunker drank 6.3 gallons and its replacement 4.02 gallons. Say 13,000 miles is driven per year that’s 296.4 gallons saved per car per year. If we use the cost of a gallon as $3 (say $2.5 market price and a very conservative cost of $0.50 nonmarket costs) that’s savings of $889.20 per year.

    Saving nearly a grand a year pays itself back in a bit over 4 1/2 years assuming….but in terms of capital lost the payback is not the $4500 but the true market value of the car destroyed since this is the actual real capital destroyed by the program. If it was a $500 clunker then it’s already been paid back most likely. We don’t have good figures on that but as I pointed out economic theory implies that people would junk the worst cars first rather than the ones near the $4500 mark.*

    4. 84% of the cars traded in were trucks. Therefore if there’s a spike in prices of used cars caused by a lack of supply due to C4C taking them off the roads we should see a spike in used truck prices and little or none in used car prices. I suspect we don’t. What we are seeing is an accross the board spike in car demand versus trucks. The economy has softened the demand for work trucks (fewer houses to build after all) and the desire for better gas mileage has put trucks at a disadvantage. The new car market can adjust quickly to this shifting demand since new cars are being produced now but the used car market is made up of cars that were built in the past. The number of used cars can’t be increased in the way that GM can shift a production line off of trucks and on to autos. This, I suspect, accounts for increased used car prices which the paper is unfairly scapegoating C4C.

    * Actually we should add in the value of the scrap metal and parts but let’s say its $0 for the sake of the argument.

  2. VAT considered. The bigger problem with VAT is that the Congress critters considering VAT aren’t thinking of it as a replacement but an addition.

    This I’m not too worried about. Taxes are about 20% of income period. That’s a historical constant that wiggles up and down more or less. If one type increases another will decrease.

    In terms of its economic advantages over income taxes, there’s some good things to be said but I’m skeptical its as simple and easy as claimed. For example, just think about 401K’s in relation to the VAT tax. It’s basically killing them. The ‘flat tax’, though, is a much bigger rip off.

  3. Boonton,
    Given that SS + Medicare comes to about 15% of income your contention that taxes are 20% is, well, preposterous. It’s not like those taxes are four times larger than income, state, sales, and other use taxes combined.

  4. Yawn, total income. We’ve been thru this before.

  5. Boonton,
    Total income reduces the 15% SS to about 13%. Yes we’ve been through that before. 15-18% is about right for SS+Medicare.

  6. Total income in the economy. You’re talking about wage income and at that you forget that above (I think it’s $87K now) SSI and Medicare taxes go to 0%.

  7. http://www.gpoaccess.gov/eop/tables09.html Since 1970 (the point at which the Great Society programs were established), the average has been 18.2% of GDP. Obama’s years, interestingly, are less than that at about 17.9%.

  8. Boonton,
    LBJ established the Great society programs. You’re off by a decade.

    And yes, I know that there is a wage cap (currently $106k not $87k). How regressive of you to point that out. I might mention that its never affected me, i.e., my wage earnings have never exceeded that figure. And the constancy of the ~18% is a reflection mostly of the fact that increased taxes on the wealthy don’t really increase tax income to the government because they both pay more tax and are more able to move their income to protected it as needed.

    You are comparing income tax rates to GDP. GDP is not limited to personal incomes as its base … so why are you comparing these figures?

    (Income GDP ->

    1. Wages, salaries, and supplementary labour income
    2. Corporate profits
    3. Interest and miscellaneous investment income
    4. Farmers’ income
    5. Income from non-farm unincorporated businesses

    2 & 5 aren’t in your figure here are they … but you compare for tax purposes. That seems problematic. I’d think you’d want something like GNI?

  9. You are comparing income tax rates to GDP.

    No I’m not, I’m comparing tax revenue to GDP. My point was that tax revenue is roughly constant at 20% of income (GDP=income). If one tax goes up others go down roughly speaking.

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