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The Mechanics
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Republicans Fri Aug 07 2009

I Don't Think That's Why the GOP Opposes Cash for Clunkers

I have to admit, I don't pay nearly as close attention to national politics as I probably should. The reason for that is because national politics are boring, and for the most part feel like a play-pretend game where very little changes after enormous energy and resources have been poured into pretending they are going to change. But that's just me (actually, it's not just me, it's also the tens of millions of Americans who have dropped out of civic participation, but that's besides the point. Wait, that's the whole point.) Whew! That might be a new record for digressions.

Anyway, when I read things like what's below, I despair a bit. I'm as opposed to conservatism as anybody you'll meet. It's reactionary, deceptive in practice, and defends the status quo against change. I hate conservatism. I tend to be more forgiving to conservatives, and, for the most part, I do believe that most conservatives actually believe the things they say--or at least, they convince themselves of these things. Impugning one another's motives is as old as politics, but has become particularly pernicious since the advent of identity politics in the 1970s, when who you were and what you felt became a political matter.

I ask you, neighbors, will we make progress when we make claims like:

GOP Wants Cash for Clunkers to Fail Because It's Helping Mainstreet America Economically. But It's Too Late.

Mark Karlin is a friend of Mechanics, but, come on. I don't think this is why the GOP hates Cash for Clunkers. I think that if this had been a Bush program they'd be crowing about how successful it's been and how it's been a great boon to automakers and whatever, and, sure, I think there's some intellectual dishonesty in their arguments. But I don't believe that Republicans want it to fail because it's helping America economically. I think they actually believe it isn't helping American economically. I don't know if that belief is right--probably it isn't--but that probably is what they honestly believe.

Mark goes on:

Reason number 5 is that the "cash for clunkers" program is so popular with Mainstreet Americans that it makes them feel more positive about the national government. My God, it's kind of like a tax break, but coming from the Democrats, but it benefits middle Americans, not just the tiny percentage of super wealthy, and it boosts the economy by increasing production -- not by just tossing 2 trillion dollars into the Wall Street gambling casino that only produces embossed paper shares that have little anchoring real value and gambling debts from the likes of derivatives.

I'd be more sympathetic to this if the national Democrats ever had the nerve to come out and make the argument that the government is good themselves. But they rarely do, and even when they do, they qualify it so much that it is essentially meaningless. They pretend like tiny tax cuts to the middle class are the solution to every problem, thus reinforcing the idea that taxes are necessarily bad. Also, while TARP was a Bush program, President Obama hasn't exactly been the scourge of Wall Street, has he? CoughHamilton ProjectCough.

There are plenty of GOP operatives and high ranking corporatists who collaborate with that leadership to create narratives that, in their heart of hearts, they don't actually believe. I got bad news for you Democratic activists out there: you've got them, too. In fact, some of them work for the President. Many of them are in Congress, or work as Committee staff. There's no doubt in my mind that the Democratic Party is a party that prefers progress and social mobility and is at least mildly hostile to the status quo; but it's frustrating to constantly fight for symbolic victories at the margins.

I have to believe that disarmament will be more effective than this constant narrative arms race that makes our political battles into viscerally hateful death struggles where we claim to know what's in each other's souls.

 
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Good Luck / August 7, 2009 2:53 PM

The clunker program is a feel good program, but it is an example of fiscal incompetence. That is why conservatives do not like the plan.

I'll use Mark's points and then add my own.

1) Surplus inventory that is forcing the automobile industry to lay off and furlough workers is sold off, resulting in unemployed people involved in the auto industry going back to work.
- no argument here

2) The hike in employment and in car industry cash flow results in more consumer spending, which helps the economy in general.
-its a wash, because there is the temporary increase in one-time consumer spending, but the majority of people trading in old cars that are paid off will now have to pay for the new car, which leaves less budget available for future spending.

As for a hike in employement, it is unlikely. All this program does is borrow money to fuel short-term demand. It is estimated that a large percentage of the new car purchases would have been made in the near term, so this program just sped up the cycle. There is no underlying reason to expect that the program would affect long term demand projections for the car companies.

3) Car owners will find that they are paying less at the gas pump and have more in their wallet as a result.
- The new vehicles on average get 25.4 miles per gallon, compared with an average of 15.8 mpg for the trade-ins.
http://www.washingtonpost.com/wp-dyn/content/article/2009/08/04/AR2009080401700.html
So lets round to 25 and 15mpg for simplicity sake.

The 10 mpg improvement means that over a vehicle's lifetime of 100,000+/- miles, the vehicle will use 4,000 gallons of gas vs. 6,666 gallons of gas. The 2,666 difference would be around $6,500 in savings at $2.50/gallon gas. That is good for the consumer, but has hidden consequences. Figure in the amount of tax revenue that is lost (fed gas tax is $0.184/gallon, IL is $0.19/gallon, and 6% sales tax) and the government loses roughly $2,900 in revenue for each vehicle.

If you actually run the numbers on this, for every $1 billion spent on this program, it creates a $644 million tax revenue shortfall (split pretty evenly between fed and state)

That shortfall will have to be made up. Since cutting spending is so out of vogue, the choice is to raise taxes elsewhere, leaving consumers with less money in their wallet, or run a defecit that just kicks the problem down the road.

4) The Detroit car industry gets a shot in the economic arm (even though foreign car manufacturers also make out big).
- at what cost? Given that the current federal budget has increased the defecit from around $500 billion to around $1.75 trillion (the White House's own estimate), the cash for clunkers program is being financed by issuing more debt in the form of long dated treasury bonds. The cost of financing the program will be more than any short-term benefit.

Here lies the problem with progressive/liberal policy, it relies on the substitution of responsibility with popularity.

Say what you want about conservatism, but at least it is economically literate.

Carl / August 7, 2009 3:10 PM

Good Luck, are you really going to stand by your assertion that conservatism is economically literate? Really?

Is there any evidence anywhere in history to prove that?

Dennis FRitz / August 7, 2009 3:22 PM

You say that impugning others' motives is bad political practice. I have to disagree. One of the biggest political crutches we force ourselves to wear is pretending everyone is sincere and well-meaning. Some people are, some are not. A good rule of thumb is this: if someone's sense of what is right and fair invariably lines up with what benefits them politically and/or economically, be suspicious.

Good luck / August 7, 2009 3:29 PM

BTW the cost to finance every $1 billion for the program costs $847,671,810.87 at today's interest rate for 30yr treauries.

Does spending $1.85 billion to create a $644 million tax shortfall sound like a good idea?

So that would be for every $1 billion spent on the program, it costs $850 million to finance it and it creates a $644 million tax shortfall.

Good Luck / August 7, 2009 3:32 PM

Sorry, was actually trying to phrase the response in a non-snarky manner and didn't delete the snark-ful comment.

Should just read:

BTW the cost to finance every $1 billion for the program costs $847,671,810.87 at today's interest rate for 30yr treauries.

So that would be for every $1 billion spent on the program, it costs $850 million to finance it and it creates a $644 million tax shortfall.

Carl / August 7, 2009 3:38 PM

It's 3 billion dollars, who cares? Gosh, that is chump change and at least a good amount of it makes its way into people's pockets.

The Bush tax cuts cost 300x the Cash for Clunkers program, only benefitted the wealthy while having no economic impact and driving deficits through the roof. And the 3 billion dollar temporary program is what's killing us? Who's the economically literate party again?

Ramsin / August 7, 2009 3:40 PM

While the contention that conservatism was the only "economically literate" option out there made me spit out by orange juice, I would ask that we continue this debate in a spirit of mutual respect, yeah?

Let's crush each other's hopes and dreams with sound logic.

Dennis Fritz / August 7, 2009 3:50 PM

Perhaps the reason economic conservatives seem "economically literate" is that Chicago School economic theories have, over the past generation or so, achieved such total dominance they have crowded out all competitors. Today, people tend to regard Chicago School neoliberal orthodoxy as simple "common sense." That one ideology has become so dominant people don't even recognize it as an ideology anymore.

Good Luck / August 7, 2009 4:13 PM

Ramsin,

"It's reactionary, deceptive in practice, and defends the status quo against change. I hate conservatism"

Not so mutually respectful.

I think the mistake both of you are making is that the GOP and conservatives are one and the same. The GOP is a political party and conservatism is a political philosophy. Imagine a venn diagram on this one, you know all of a does not fit in b...

Carl,

You can only say that the Bush tax cuts "cost" us anything by believing that money belongs to the government and not to individual citizens (key difference in the whole conservative thing). The tax cut also cut the lowest tax rate from 15% to 10%, which was a very big benefit for low income families (just wait until they expire if you don't believe me).

Here's the thing though, when you have a democratic president with supermajorities in both the house and the senate, and the best economic package they have been able to put together is the cash for clunkers program, which pointing to the above analysis, is a total clunker in itself, you have real problems.

Ramsin / August 7, 2009 4:49 PM

GL, Actually quite the opposite. I don't confuse conservatism and the Republican Party. That's my point; I detest conservatism. There's nothing about being respectful of other people that says I have to respect an ideology. I don't "respect" fundamentalist Islam, either, or Stalinism. I think they're bad. Similarly, I think conservatism is bad. I think it is a philosophy and ideology that is wrong headed, purposefully deceptive, etc. Don't confuse tolerance with accepting.

The reason I wrote this entire post is because I think people tend to take their disagreements with an ideology people have bought into and transfer that into an analysis of people's personal motives and feelings. There are conservative Democrats, believe me, we're all well aware.

Don't imagine that I'm ever going to stop calling out conservatism and right-wing reactionary politics. I'm not. What I will do is encourage people not to accuse others of being idiots, dupes, suckers, or purposefully dishonest. In other words, no ad hominems. It's nonsensical to ask people to "respect" an ideology they disagree with fundamentally.

Carl / August 7, 2009 4:50 PM

I understand that the "I know how to spend money better than the government" premise is central to conservatism. My comment was more targeted towards Republican administrations that execute tax cuts without reductions in spending. It is a highly opportunistic stance to claim that liberals are irresponsible deficit spenders when they execute their agenda when the past 3 conservative presidents have increased the deficit by considerable amounts more than liberal administrations.

The cash for clunkers programs is pure Keynesian economics. The government is stepping in to help stabilize the business cycle. In addition, the cash for clunkers program has positive impacts beyond the support of the auto sector. While I am still researching this myself, most analysis I have read gives a favorable environmental grade to the program. (The large presumption here is that auto companies will begin to produce more fuel efficient cars from this point on.) With regards to less tax revenue collected from gasoline taxes due to more fuel efficient engines, anything that helps release us from grip of OPEC, however slightly, is by definition good economic and foreign policy.

For 3 billion dollars, that is pretty good bang for your buck. Certainly there are other aspects of the stimulus that will have a greater impact but it seems that conservatives oppose the program because of an ideological detest for domestic government spending rather than concern for our long term fiscal solvency or economic well-being; their track record bears this out.

Carl / August 7, 2009 5:06 PM

Concerning the Bush tax cuts on the lower class...

They were generally irrelevant because, while their marginal tax rate went down, their wages grew much more slowly than those in the upper tax brackets. This had the effect of decreasing their purchasing power while expanding income disparity. History has shown the best way to expand the middle class is to support the institutions that make that style of living attainable.

Good Luck / August 7, 2009 5:09 PM

"anything that helps release us from grip of OPEC, however slightly, is by definition good economic and foreign policy."

Then you support domestic oil drilling. Fantastic.

Please provide that track record you speak of.

Dennis Fritz / August 7, 2009 5:12 PM

In science, some ideas come along that are so outrageous, scientists sometimes describe them as "not even wrong." At least wrong ideas tend to be internally consistent; not-even-wrong ideas are just nonsensical.

I think this is the problem with much of contemporary conservatism. For example, plenty of debate can be had about taxation. Is such-and-such a tax too high or not high enough? Is the share of the tax burden born by group X too great or too small? Will this-or-that tax increase have its intended effect? All legitimate questions. But to be to be against taxes in general, as so many conservatives seem to be, is just nonsensical. It is, as the scientists might say, not even wrong.

We could say the same thing about the role of government in general. Many conservatives seem to hold a two-pronged position on this question. Prong one says, "the government can't do anything right." Prong two says, "everything can, and should, be run like a business." Utterly, utterly nonsensical. Some things may indeed be best left to the so-called "free market." I have no serious objection to a market in, say, running shoes. However, we have ample evidence that allowing a market in health care is a terrible idea. Right now. we in the US rank first in our health care expenditures, yet rank near the bottom interms of overall health outcomes. Bad, bad system. Yet, conservaties (and many liberals!) insist any alternative must be market-based, or at least market-friendly. This is a purely ideological position that fails to ackowledge contrary realities.

Carl / August 7, 2009 8:42 PM

Drilling would definitely be good economic and foreign policy, however, it would be terrible environmental policy. Foreign relations and the economy can (generally) always be repaired, damage to the environment can (generally) never be undone.

The track record I speak of begins generally with Reagan (although the seeds really began with Nixon) where conservatives declared war on the New Deal, the epitome of domestic spending, in the name of deficit reduction while simultaneously increasing defense spending beyond anyone's wildest dreams. If you Google a bit for "presidents" and "deficit" you'll quickly find several graphs that show the correlation between liberal presidents and deficit reduction and conservative presidents and deficit expansion.

While past performance is certainly no justification to allow the current administration to implement any program it wishes, liberals deserve a degree of trust among deficit hawks.

Good Luck / August 9, 2009 11:53 AM

Carl,

I wasn't expecting much, but that was underwhelming.

Dennis,

Your statement that the US is near the bottom in healthcare outcomes is patently false. Look at cancer survival rates, according to the American Cancer Society and the UK Office of National Statistics:

Prostate cancer 5yr survival rate
US - 100%
UK - 77%

Breast Cancer 5yr survival rate
US - 87%
UK - 80%

Ramsin / August 9, 2009 7:18 PM

GL, before you can say his statement is "patently false" you need to do better than just presenting the 5 year survival rate for two specific diseases. I'm not saying he necessarily defending his statement, but "patently false" was definitely not proved by "cherry picking two ailments". Annually, 80,000 people die each year from both breast and prostate cancer. Nearly as many people die from diabetes-related deaths every year. How is that comparative?

Good Luck / August 10, 2009 1:02 PM

5yr survival rate for lung cancer

US - 16%
UK - 8%

Here is some additional information: http://news.bbc.co.uk/2/hi/health/7510121.stm

On heart disease:
http://www.nationmaster.com/graph/hea_hea_dis_dea-health-heart-disease-deaths

So when you have someone saying that the US healthcare "outcomes", which we can agree that death is a most unfavorable outcome, are near the bottom, there is an abundance of information that proves this false.

Good Luck / August 10, 2009 3:20 PM

...and on to the environmental accomplishment of the program:

"The estimates vary, but somewhere between 3 and, say, 12 tons of CO2 are produced for every car you make," says William Chameides, dean of the Nicholas School of the Environment at Duke University.

"Chameides calculates that if you trade in an 18 mpg clunker for a 22 mpg new car (22 miles per gallon is the minimum mileage allowed for a new car under the program), it would take five and a half years of typical driving to offset the new car's carbon footprint. With trucks, it might take eight or nine years, he says."

http://www.npr.org/templates/story/story.php?storyId=111511131

Carl / August 10, 2009 4:38 PM

GL-

The law also states that to get the full ($4,500) amount of credit for your "clunker" there must be at least a 10 mpg difference for cars, 5 mpg for SUV's and 2 mpg for trucks.

In addition, the average MPG for new cars in the US is over 30 mpg. The average passenger vehicle in the US gets around 22 mpg. Taking into account the qualifications for cars to be eligible as a "clunker" 18 mpg is probably at the high end of fuel efficiency for those vehicles.

Even if the program allowed for a 18 to 22 mpg transaction, given the state of the current vehicle fleet and the vehicles currently on the market, that scenario is not at all probable.

http://www.bts.gov/publications/national_transportation_statistics/html/table_04_23.html

So the time frame for the program to reach the carbon "break even" is substantially shorter than the estimate given by William Chameides.

Carl / August 10, 2009 4:42 PM

Also, the 22 mpg you speak of is for SUV's. Cars must be better than 27.5 mpg.

Dennis FRitz / August 10, 2009 5:06 PM

Carl,

Yes, I also know how to carfully select statistics that support my case while ignoring those that don't. It's called "cherry picking."

However, when I said the US ranked near the bottom of industrailized nations, I was talking about studies that use macro-indicators like infant mortality rates, overall longevity, and so on. To put forward microindicators--e.g. the 5 yr. survial rates for carefully selected types of cancer--and present them as if they were macroindicators is just dishonest. Sorry.

Good Luck / August 10, 2009 6:29 PM

To get the $3,500 rebate, you only need a 4 mpg improvement for a car, 2 for a light truck, and one for a full size.

Not exactly setting the bar high.

Dennis,

Yeah, I just cherry picked three major forms of cancer and how the survival rates are much better in the US than in the UK, where socialized healthcare has been implemented.

Oh and then I just cherry picked heart disease which happens to be the leading cause of death in the US.

So dishonest. None of that should be looked at when making a judgement about the healthcare system. No that would be too direct of a link, since the correalation of actual treatment tends to be strongly tied to whether you survive cancer or not, or if you prevent a heart attack.

Let's say you fall ill and it turns out to be prostate cancer (rhetorically speaking of course, I hope you have a long and prosperous life). Do you want ot be treated in the US, where you are almost guaranteed to live for at lest 5 more years or in the UK, where your odds are 3 out of 4?

Or how about this, people in Sweden live longer than those in the US, but also have a hgher occurence of heart disease. Your macro-measuring stick would assume that the Swedes have it wonderful.

Carl / August 10, 2009 9:30 PM

GL,

It's practically impossible to only have a 4 mpg improvement given the (albeit modest) improvement in fuel economy standards in new vehicles over the past few years. Even though the program allows you to trade a 18 mpg car for a 22 mpg car, the number of 22 mpg cars on the market are so small that a greater gain in efficiency is practically assured.

Again, 18 mpg represents the upper range of fuel economy for clunkers, many are much less efficient.

Through the initial phase, the DOT has reported an average fuel efficiency improvement of 9.6 mpg:
http://news.yahoo.com/s/ap/20090803/ap_on_go_ca_st_pe/us_cash_for_clunkers

I'll admit I was very skeptical about the program's environmental credentials when I first heard about it but the more I've learned about the program and read about it's initial effects, it as actually a really good program and has saved more than a few people I know $4,500.

Good Luck / August 11, 2009 2:28 PM

The bill calls for any trade-in to be demolished, so instead of that car being re-sold to someone in the market for a used vehicle, it will be destroyed and sold for scrap.

That is a monumental destruction of value. It backfires further when you consider that the program also destroys supply in the used car market, thsu driving up the price of used cars.

So while you may know more than a few people who saved $4,500 (paid back later by higher taxes or higher interest rates, of course), you can take comfort in the fact that this program also raised prices for those who can least afford an increase in their transportation costs, i.e. less wealthy people who buy used cars.

Carl / August 11, 2009 4:54 PM

GL, I think you over estimate the value of the clunkers, regardless you do make a fair point. However, I would argue that it is a far greater hardship for those who lose their jobs due to the decline in auto manufacturing than those who would have to pay slightly more for a used car. I didn't bother looking for stats on this, but I can't imagine that the supply of used cars is so constrained that we're about to see higher resale values, particularly when there are so many incentives propping up the demand for new cars (and the fact that most of this country's old cars really suck).

I suppose if you wanted to argue that the program is unfair because it places greater importance on the Rust Belt, upper midwest unemployed over other regions of the country (sans Wall Street), I would agree. But, given that Illinois gets so little back from the federal government, I don't particularly care.

I also wonder what auto sales are going to look like the next 1-3 years due to the current shopping spree. For example, if there was a federal rebate on pool tables and everyone rushed to take advantage of it, you know what would not sell for the next few years? Pool tables, everybody has one already.

Dennis Fritz / August 12, 2009 5:05 PM

Carl,

It is interesting how many of your examples are US-UK comparisons. It is well known that as far as state-run systems go, Britian has one of the worst. Again, I think you're cherry picking.

Here's some info for you:

1) The US ranks 23rd in the world when it comes to infant mortality. This is down from 12th in 1960.

2) The US ranks 20th in life expectency for women. That's down from 13th in 1960.

3) The US ranks 21st in life expectancy for men. That's down from 17th in 1960.

4) The US spends at least 40% per capita for health care than any country with national health care.

Bottom line, we're spending more than anyone else on health care by a wide margin, yet our outcomes are fair at best and slipping. That we are even debating the superiority of a state system in the 21st century shows what a stranglehold Chicago School neoliberalism still has on American political discourse.

For more than a generation, we've been marinating in a stew of Chicago School neoliberal orthodoxy. This orthodoxy is now regarded as "common sense" by millions of Americans. Opposition to national health care is more about ideology than public policy.

The neoliberal mind-set holds that government can't do anthing right. The obvious (though often unstated) correllary to this is that business does everything right, and that everything can, and should, be run like a business. Only solutions that are market -oriented, or at-least market friendly, are considered viable. To say otherwise is blasphemy.

It's time to let go of this tiger before it turns around and bites us again.

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