Glaeser on Clunkers

The cash for clunkers program has three goals: to stimulate economic activity, decrease fuel consumption, and decrease carbon emissions.  Edward Glaeser, a Harvard economist, argues that the program fails on the last two accounts following.  Part of his reasoning is similar to that of economists who have studied the impact of CAFE standards.  People who drive newer, nicer, more efficient vehicles drive more, partly because it cost less.  Glaeser writes in a Boston Globe article titled, "Program has clunky reasoning," that

...We should expect more driving from someone who is induced to buy a newer, more pleasant car that is cheaper to drive. No one should be surprised when the stimulus package’s jolt to highway spending increases driving. Some leaders seem to think that subsidizing high-speed rail will offset this cash for cars, but subsidizing travel means more travel and more carbon emissions. The best way to get people to ride trains is to impose appropriate taxes on carbon and congestion charges.

If the government is desperate to subsidize something, it should focus on the greening of urban buses. With public bus lines, the number of vehicle miles can be kept constant. Better bus service in the urban core encourages high-density living. Unlike new cars or inter-urban rail lines, which transport the prosperous, buses are disproportionately used by the poor. The cash-for-clunkers policy actively reduces the supply of old cars available for lower-income buyers, but environmental policy need not be regressive.

Good policies ensure that subsequent behavioral responses work toward the policy’s aims, not against it. If America wants to fight global warming, a carbon emission tax makes more sense than car subsidies. Doling out cash for ailing car companies may be popular, but that doesn’t make it right.

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