Tuesday, October 6, 2009

Save the Environment by Wasting!

During World War II, our government distributed posters like this one to let the American public know that thrift was patriotic. (If you'd like to see more, visit Northwestern Unversity's World War II Poster Collection.)

For the past few decades thrift has taken a back seat to consuming as a show of patriotism. Remember when George W. Bush encouraged us all to go shopping after September 11?

A great illustration of this "save the nation through waste" philosophy in action was the Cash for Clunkers program. I liked the idea of a program that gave Americans both an incentive to support the auto industry-- I am from Detroit after all-- and to do so by buying more fuel efficient vehicles. On its face it sounded green and ingenious. The public loved it too. What's not to love about a great big discount on a major purchase?

I immediately changed my mind when I learned that the old, perfectly working "clunkers" had to be destroyed and crushed. With the exception of only a few components, they couldn't even be used for parts to maintain current vehicles. I could not figure out how this massive waste could really save the environment. (This is not even addressing the issue of the disposal of mercury switches in older vehicles that the pre-bankrupcy GM would have been responsible to clean up but the "New GM" insists it is not.) Surely the energy saved by the more fuel efficient cars would be offset by the energy it would take to make entirely new vehicles, and new parts for other older vehicles, rather than using existing working cars and salvage parts.

The Wall Street Journal just published an analysis of the Cash for Clunkers program and it concluded exactly that.

According to Hudson Institute economist Irwin Stelzer, at best “the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day’s gasoline use.” Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, “Economics in One Lesson,” you can’t raise living standards by breaking windows so some people can get jobs repairing them.