Is Cash-for-Clunkers Crackpot Economics?

Last Updated Aug 12, 2009 12:38 PM EDT

The government's cash-for-clunkers program to get old gas guzzlers off the road and people back in dealer showrooms buying new -- albeit more fuel efficient -- autos appears to be working. But some critics worry that:
  • The $3 billion program is helping just a few people (car buyers and auto dealers) at taxpayer expense.
  • Impact on the environment is marginal -- we are still underwriting a new generation of vehicles powered by fossil fuels.
  • Sucks away consumer spending from other areas.
Wall Street Journal editors called C-f-C "crackpot economics."
"The subsidy won't add to net national wealth, since it merely transfers money to one taxpayer's pocket from someone else's, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years."
To which I say, what a bunch of grumps. The is a small investment for a large step in the right direction in terms of increasing GDP, easing the strain on the environment, boosting an important sector of the economy and perhaps even putting some people back to work in a decimated industry. Even if it does all those things just a little bit.

Harvard Business Publishing blogger Umair Haque calls this a "bailout with the promise of reform."

"Let me welcome you to 21st Century economics. Today, in the better economy we're building, less carbon emitted does add to national wealth. And that's exactly why Cash for Clunkers matters."
Do you think cash for clunkers matters? Is it doing more harm than good?

(Clunkers image by ThreadedThoughts, CC 2.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.