Posts tagged ‘cash for clunkers’

Coyote on TV

I flew to New York to go in studio on the Stossel show today.  I did a brief bit on the minimum wage, a reprise from my earlier cameo on Stossel special.  It will be on tomorrow, Thursday at 9PM Eastern on Fox Business  (not Fox News, Fox Business).

The whole experience was new to me, which made me virtually unique as I was surrounded by policy wonks who do this kind of talking head thing all the time.   By the way, there was no sharing of questions or his plan in advance -- I think they want you cold.  So answers are all in real time.

Please, please, please do not write me or post comments such as "you should have said ____."  It will just depress me.  Believe me, 5 minutes after walking out I thought of 9 things I should have said.  Which is in fact why I blog rather than engage much any more in real time argument.

Anyway, I think his show will be pretty good -- he has Michael Cannon on health care and segments after mine on cash for clunkers and alpaca subsidies.  I shared the green room with an alpaca, which will probably just go to prove the old saying about always getting upstaged by kids and animals.

By the way, I think Stossel must set a different tone for his staff than is normal on TV.  I was talking to one of his producers, a guy that had come with Stossel from ABC, and I asked him if he had studied something relevant to this job in college.  I expected him to say "yes, theater" or "yes, television production."  But he said "yes, economics at George Mason."  I loved that answer.

I Sense a Pattern Here

Here is a chart I ran a while back on auto sales, showing how the cash for clunkers "stimulus" program simply spent a bunch of money to pull forward car sales by a month or two

Here are housing sales -- I don't have time this morning to annotate the chart but the housing stimulus program expired in May

Did You Ever Notice....

Did you ever notice that when government programs are labeled "popular," it is always by their beneficiaries, e.g.

For the second time in two years, the state universities are weighing whether to limit or even get rid of the popular AIMS scholarship, which waives tuition and fees for thousands of college students.

Since most similar government programs consist of giving people something of value for free or at least for a below-market price, aren't they always going to be popular with their recipients?  Wheat subsidies are popular with wheat farmers, light rail subsidies are popular with those who ride it, cash-for-clunkers was popular with folks who got 2-3x blue book value for their trade-ins, and education subsidies are popular with the students and parents who get them.  In this usage, then, I would argue that the word "popular" in the paragraph above is entirely tautological and should therefore be eliminated from standard usage.  The only meaningful definition of "popular" vis a vis a public program should be "popular with those who fund it."

Home Sales Following Cash-For-Clunkers Trajectory

As a reminder, here is the effect of the cash-for-clunkers new car sales "stimulus."

A lot of taxpayer money was spent to line the pockets of a few lucky buyers without doing anything to change the overall trend of auto sales.

Well, it looks like with the end of the housing stimulus program, we are seeing the exact same effect:

Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation's housing market.

The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify.

...

New-home sales in May fell from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. And it's the largest monthly drop on record. Sales have now sunk 78 percent from their peak in July 2005.

Analysts were startled by the depth of the sales drop.

"We all knew there would be a housing hangover from the expiration of the tax credit," wrote Mike Larson, real estate and interest rate analyst at Weiss Research. "But this decline takes your breath away."

Stimulus Was a Clunker

I have written a lot about the Cash for Clunkers law, and the fact that it was a hit with its beneficiaries because it bought cars that blue-booked for just under $1500 for two or three times that amount.  Other studies have shown that the program did abate some CO2, but at ridiculously high prices per ton.

But I have found a reason to love the Cash for Clunkers program:  it is a fabulous demonstration project for just how utterly pointless government stimulus programs can be.  Stimulus programs tend to be hard to evaluate in our complex economy -- sort of like trying to calculate the effect of a butterfly flapping its wings on world climate.  But since cash for clunkers only lasted a few weeks and hit only one industry, we can learn a lot about the effectiveness of government stimulus.

Here is the US Census data for auto dealer sales (source).  Thanks to my friend Scott who first pointed me to the analysis:

The dotted line simply averages the sales for the month of the clunkers program and the month after.  I think it is pretty clear that we spent a few billion dollars making some used car owners happy (by overpaying for their vehicles) but did absolutely nothing to move the trend line in auto sales, as the program appears to have just pulled forward purchases rather than stimulated new ones.

Update: Welcome Instapundit readers.  This is all in the family blogging day, as my son just started up his own blog with a post ranking baseball players.  Feel free to give him grief for being a Yankees homer.

Government Stimulus in One Picture

Looking at the chart below, attempt to convince yourself that the cash-for-clunkers program had any real effect on economic activity.

And consider what was NOT purchased by the previous holders of the billions of dollars the government took from them to give to car buyers.

This is Stupid

From the new bill signed by Obama today:

Under the new law, businesses that hire anyone unemployed for at least 60 days would be exempt from paying the 6.2 percent Social Security payroll tax through December. Employers also would get an additional $1,000 credit if new workers remain on the job a full year.

This is absurdly game-able.  How do I know?  Because as I read this here (I have not read the legislation) this is a ridiculous windfall for our company.  As a seasonal business, my current payroll is about 40 people.  Over the next two months, I will hire nearly 400 workers for the summer, most of whom have not been working over the winter as they are retired and just work a few months of the year.  Am I really not going to have to pay Social Security taxes on all these people?

And how is anyone going to administer this?  Are my payroll company and I going to have to figure out the employment status of all of our hires for the last 60 days to figure out what taxes to collect?  Does anyone in Congress even think about this stuff when they pass this garbage?

Update: ADP has more

Update #2: Here is my prediction, if they forgot about seasonal hiring  (again, I have not read the letter of the law yet).  This will be like the cash for clunkers program - in a month or two they will announce that they have used up the money they had allocated for the whole year.

The Unintended Consequence They Pretended Not To Expect But Everyone Predicted

Cash for clunkers has raised used car prices, particularly for the poor looking for cars under $5000

In her search for a cheap, used minivan for her and her husband, Krissy Dieroff has visited seven dealerships across Berks and Schuylkill counties in the last week, but to no avail.

"There's not much to pick from, and the ones we do find are overpriced," said Dieroff of Auburn, Schuylkill County, while browsing the lot of a city dealership on Monday.

Dieroff blames the shortage of inexpensive used cars on the federal cash-for-clunkers program, in which almost 700,000 used vehicles were traded in for newer, more fuel-efficient vehicles, and then scrapped.

Some local used car dealers specializing in vehicles priced $5,000 and under agreed that there are fewer inexpensive vehicles available.

The trend is occurring nationally as well.

The Manheim Used Vehicle Value Index reported that prices reached record highs in September. The consulting firm that publishes the index blamed low inventories.

That's bad news in Berks, where many shoppers seek inexpensive, used vehicles, especially during difficult economic times, said George Tabakelis, general manager of Perry Auto Service & Sales on Route 61 in Perry Township.

"Customers used to be able to find a good car for their son or daughter to take to college for $2,000 or $3,000, but now that same car may cost $5,000," Tabakelis said. "It's sad."

Via Maggies Farm

Do Consumers Get Excited About Sales They Don't Qualify For?

Tiffany's is (hypothetically) handing out coupons for 50% off diamond necklaces.  This generates a lot of press, but you do not get a coupon.  Are you, without a coupon, more likely to buy a necklace anyway given all the publicity?  Or is your behavior unchanged, because you received no inventive?  Or are you perhaps less likely to buy, with the full retail price you would be paying now seeming higher as compared to the 50% off others are getting?

This issue seems to be at the heart of the conflict between the Obama administration and Edmunds.com (what is it about this administration and picking battles with media companies?)  In their analysis, Edmunds said that only about 250,000 of the auto sales during the cash-for-clunkers period were incremental.  The White House says they are underestimating, because even people who did not qualify for the program bought more cars because of the program:

The White House said [totally great car-buying, car-selling, and all-around-awesome-info site for every goddamn great and awful car website] Edmunds based its analysis on the "implausible" assumption that "the market for cars that didn't qualify for cash for clunkers was completely unaffected by this program. In other words, all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the cash for clunkers program."...

Edmunds stands by its analysis.

"Instead of shooting the messenger, government officials should take heart from the core message of the analysis: The fundamentals of the auto marketplace are improving faster than the current sales numbers suggest," [Edmunds jefe Jeremy] Anwyl wrote.

The central issue, Anwyl said, "is how many of these sales would have occurred anyway. Apparently, the $24,000 figure caught many by surprise. It shouldn't have. The truth is that consumer incentive programs are always hugely expensive when calculated by incremental sales -- always in the tens of thousands of dollars."

Edmunds rejected the White House suggestion that people got caught up in the excitement of the program and bought cars, even if they didn't qualify. And it discarded the notion that automakers boosted production solely because of the program.

"No manufacturer increases production, a decision with long-term consequences, based on the 30-day sales blip triggered by an event like cash for clunkers," Edmunds wrote.

Its an interesting question.  I would tend to come down on Edmunds' side from my own experience running promotions, but it is not totally cut and dried.  I can think of at least two examples where a discount to person A yields more sales to person B, but neither are really applicable here

  • Example 1:  Ladies night.  Cheap drinks for the ladies bring in male customers, on the theory that that are looking for bars with, frankly, lots of drunk women
  • Example 2:  Kids eat free.  Restaurants have programs with discounted or free kids meals to get their parent's business

I think one could actually make the argument that people who did not get the clunker discount would be less likely to buy, as its really hard to buy something for X when you know all the people around you are getting it for (X-$3000)**.  This isn't an absolute rule - after all, people fly all the time next to folks who paid more or less for the same service.  But I do think it is a psychological issue that would tend to offset the general excitement around the program.  In the end, we won't have to guess, once we get sales data for the rest of the year and we can see if clunkers merely moved sales forward a few months or generated incremental sales.

**  As shown here, cash for clunkers amounted to about a $3000 subsidy per buyer, above and beyond the blue book value of the car turned in.

Wow, Who Would Have Predicted This?

The answer is:  Just about everyone who was not in the tank for the Obama Administration predicted this (from my Princeton classmate Henry Payne):

When Congress gave away $3 billion for buyers to trade in their "clunkers" and buy new cars in August, lawmakers thrilled as buyers swamped showrooms to take advantage of the big discounts. "Cash for clunkers has captured the public's attention . . . (it) has the possibility to truly jumpstart our economy, said Rep. Candice Miller (R., Mich.). Other, more sober analysts, warned that the clunkers program was only stealing from future sales.

September sales are in, and sobriety can take a bow.

Edmunds.com reports that "September's light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once -- in December 1981 -- with records stretching back to January 1976."

The real popularity of the program was always due to the fact that the government was throwing money away and people rushed to pick it up.  Edwards.com estimated the Feds purchased vehicles with average blue book values of just under $1500 for $3500 to $4500.  That means that the government purchased cars that blue booked at just over a billion dollars for three billion.  I you suddenly offered to buy all of your neighbors' cars for three times what they were worth, you'd be popular too.   It was a $2 billion giveaway, and people rushed to pick the cash up like one of those money drops in the outfield of a minor league baseball game.  In doing so, the government made a trivial change in the overall fleet fuel economy, in the process overpaying for Co2 reduction by a factor of 20.

Update: The study linked above shows the government paying over $400 per ton of Co2 reduced in the Clunkers program.  The 20x factor cited was based on an estimated clearing price of a tone of Co2 in a future cap and trade system.  This is hypothetical, as currently a ton of Co2 offsets trades right now in the US at 20 cents.  At this price, the program overpaid by a factor of 2000.  To be fair, this reflects both estimated pricing as well as a discount for the likelihood of a cap and trade bill passing.

Editorializing in the News Section

The AZ Republic is at it again, cheer-leading any program that spends more taxpayer money, even to the extent of blatant editorializing in a news article.  From an article on cash for clunkers (emphasis added):

The program leveraged $3 billion in clunker rebates into $20 billion-plus in new-car sales. That far exceeded the initial goals for what is arguably the most successful of the government's recent economic-stimulus programs.

Here are the sum total of the sources quoted to reach this conclusion:

  • Scott Gruwell, general-sales manager of Courtesy Chevrolet in Phoenix
  • U.S. Transportation Secretary Ray LaHood
  • Bobbi Sparrow, president of the Arizona Automobile Dealers Association
  • Arizona MVD spokesman

So lets see -- the article quoted three groups that receive money from the program plus the administrator of the program.  Can't get more balanced than that.  I am not really good with the pithy 200-word letter to the editor, but I sent this in today:

Max Jarman and Betty Beard wrote that the cash for clunkers program "is arguably the most successful of the government's recent economic-stimulus programs."  Admittedly this is a low bar, but what evidence do they have of "success?"

Car buyers, they argue, really like the program.  Edmunds.com estimates that the government has been paying $3500 to $4500 for vehicles that have a blue book value averaging just under $1500 each.  Of course participants are happy "“ the government is effectively buying dollar bills for three dollars each!  But is this really a reasonable way to spend taxpayer money?

Car dealers also seem to be ecstatic about the program.  I would be too if the government gave my customers $3 billion of other people's money to buy products from my business.  But why are auto dealers more worthy of such largess than appliance dealers, or home builders, or even massage therapists?

Not mentioned in the article are the other 99% of car owners and business that did not participate in the program.  Unseen and unspoken for are the businesses and individuals who are $3 billion poorer because the government has chosen to divert this money to a more politically-favored industry.

Your Government At Work: Buying Dollar Bills for $3

From Edmunds:

Consumers who traded in their clunkers through the program also benefitted financially, generally speaking. Based on preliminary data, Edmunds.com estimates that the average cash value of the traded-in clunkers was $1,475. The owners of those vehicles earned rebates for either $3,500 or $4,500, depending on the replacements vehicles they chose. Edmunds.com Senior Analyst David Tompkins, PhD, points out that many will also save money on gas each month, thanks to their more efficient new purchases.


So the government is paying consumers $4500 for assets with a market value of $1,475.  Well of course it's a popular program with its participants -- Obama is buying up dollar bills for $3.

Left undetermined is whether consumers have been enticed into more expensive cars they cannot afford by this $3000 windfall.   It seems like just yesterday when the Obama administration was slamming credit card companies for enticing people into debt with low teaser rates or slamming mortgage companies for enticing people into mortgages they could not afford.

By the way, someone needs to explain the economics behind the theory that lining auto dealers pockets with taxpayer money is stimulative to the economy:

"Our analysts have determined that dealers are enjoying a 20 percent increase in gross profit per sale involving a clunker trade-in since the program launched."

Being Slower and More Beauracratic Than GM Can't Be Good

One of the reasons GM entered bankrupcy was that its slow and ponderous beauracracy couldn't handle the pace of the modern marketplace.  But one thing even than beauracracy could do was produce dealer rebate checks in a timely manner.  When many of your dealers are running on only a thin cash flow margin, even GM knew it was important to get rebate checks to dealers quickly.

So it is a bad sign that the government, who wants to run the auto industry, the banking industry and soon the health care industry, can't seem to process checks in a timely manner:

Some New Mexico auto dealers have backed out of the cash-for-clunkers program and more may do so as the federal government takes its time providing cash reimbursements.

Dealers across the state are owed more than $3.6 million, according to a dealers' group which says that so far Uncle Sam has only written three checks totaling about $14,000....

Dealerships put up the cash for the rebates after being told by the Obama administration they would be paid back within 10 days of the sale.

And here:

Hundreds of auto dealers in the New York area have withdrawn from the government's Cash for Clunkers program, citing delays in getting reimbursed by the government, a dealership group said Wednesday.The Greater New York Automobile Dealers Association, which represents dealerships in the New York metro area, said about half its 425 members have left the program because they cannot afford to offer more rebates. They're also worried about getting repaid....

Schienberg said the group's dealers have been repaid for only about 2 percent of the clunkers deals they've made so far.

Many dealers have said they are worried they won't get repaid at all, while others have waited so long to get reimburse

The problems cited in other analyses are two that I see all the time in dealing with the government:

  1. Obsession with minute paperwork errors, and rejection of applications for the smallest errors.  For a variety of reasons, government clerks in this kind of program seldom have the knowledge, the incentives, or even the ability to parse between errors and omissions that matter and errors and omissions that are irrelevant.   In fact, if the same application comes back 5 times, that's just more job security.  I have discussed this a number of times, as state liquor license boards have rejected our applications repeatedly for ridiculously small, meaningless errors (here and here, for example)

    Here is my prediction:  You will soon see someone inside the government blaming the dealers, saying it is all because they are not following the 300-page process correctly or not filling out the forms correctly.

  2. Absolute unwillingness to write a check.  Some of you know that I am in the odd position of being a libertarian who does a lot of business with the government, a result of my effort to privatize the operation of public recreation.  I am in the position of sometimes paying the government money (I typically don't get paid to operate a facility, I operate it for profit and pay the government a rent or concession fee) and sometime in the position of getting paid.  The government always demands all of its money owed to it well in advance (think of withholding, where you pay the government your taxes months before the true April 15 deadline).  The government only pays in arrears, and sometimes well in arrears.  Last winter, my funding troubles (when my bank holding my line of credit went bust) were aggravated by the fact that the government took 15 months to pay us $175,000 they owed us, at the same time it demanded an additional $500,000 in advance rent payments on the next year.

By the way, since every post related to the government this month must be related to health care in some way, what they government is doing on cash for clunkers is highly related to the difference in overhead costs between Medicare and private insurance companies.

The cash for clunkers processing is taking a long time in part because the government is worried about fraud and wants to make sure every car it pays out on was really qualifying and destroyed properly.  This takes time and manpower and overhead.  But this is exactly what private medical insurance companies spend their overhead on -- making sure that claims are real and justified and are not padded.  Medicare has lower overhead costs, in part because of government accounting hides some overhead, but in part because Medicare does not do any due diligence before it cuts a check.  It gets a form, it sends out a check.  It does little checking to see if the claim is real.

Moolah for Mainframes

from a reader:

The White House is secretly planning to follow "Cash For Clunkers" with a new scam called "Moolah For Mainframes" that will reward CIOs for replacing mainframes with smartphones and turning data centers into wetlands. The top-secret plans also say the Administration will launch a government-run IT company in 2010 "to keep those greedy private IT companies honest."

Since the White House has already made incursions into banking, the car industry, insurance, mortgages, and healthcare, the Administration sources said that a number of top executives in the IT industry "have become kinda jealous and angry" about the government's lack of direct ownership in the tech business.

Using air quotes liberally, another White House source said, "The President is on "friendly terms" with many "techie CEOs" and he says they feel there's been a "breach of etiquette" with all those other industries getting "stimulus" while the IT industry has had to "battle it out" in the marketplace with only customer revenue to "fall back" on."

These Are The Folks Who Promise to Streamline Medicine

From Henry Payne:

"In apparent violation of the new cash-for-clunkers law, the Department of Transportation [DOT] is more than 10 days late in paying rebates of at least hundreds of thousands of dollars on dealer claims," reports Automotive News....

The clunkers law signed by President Obama requires that dealers be reimbursed by the government within ten days for the $3,500 to $4,500 credits they've paid to customers. The DOT says it's working through computer problems.

"Very few dealers are getting very little money," said Bob Israel, president of the Louisiana Automobile Dealers Association. "It's not working smoothly at all."

David Wilson, a Toyota dealer in Orange County, Calif., has been paid for only three of 92 claims he submitted before Aug. 2, leaving him in the lurch for $374,000.

North Carolina's Brad Wood has12 unpaid claims since Aug. 1. He's received just $26,000 of the $319,000 in rebates he is owed. "I've never experienced anxiety like this in business before," he says. "If I don't get paid, I will have been working almost free for several months."...

Many deals are also are getting rejections for procedural minutiae that they can't straighten out because the 200 employees DOT has allocated program aren't enough. Employees are inaccessible by phone or e-mail, NADA's Wood says. The problem? Unlike the IRS, for example, which doesn't audit every tax form, all clunkers applications must be reviewed. That's 315,000 forms so far (for a staff of 200). Washington is scrambling to boost the number of employees to 1,000, but that will cost more money in a program already tight for cash.

Read the whole thing.  He goes on to describe the way in which the Feds are setting up dealers as the fall guy for the Fed's failures.

Update: From Carpe Diem, on health care in Britain

1. TELEGRAPH -- A quarter of a million people are waiting more than 18 weeks for treatment on the NHS, new figures show. The figures, published by the Lib Dems, show that 236,316 people are currently waiting more than 18 weeks for a range of treatments including oral surgery, rheumatology and geriatric medicine. This means that nearly 10% of patients are not being treated within the government's waiting list target.

2. TELEGRAPH -- Civitas, the think tank, blames the monolithic nature of the National Health Service for "putting the patient last". It argues that the "customer" of the NHS business model introduced by Tony Blair and continued by Gordon Brown is the health secretary rather than the patient.

By the way, if you are intrested in free markets and economics, you really should be reading Carpe Diem. I could link almost every one of Mark Perry's posts if I had the time.

Cash for Clunkers: $416 Per Ton of CO2 Reduction

Christopher R. Knittel of UC Davis has  a paper (pdf)  looking at likely CO2 reductions from cash-for-clunkers under a variety of assumptions.  The $416 figure per ton of CO2 avoided may actually be low, as it does not include the well-documented rebound effect of people with higher MPG cars driving more miles**.  Also, he admittedly assumes that cars being turned in will have average future driving miles for a car of similar age, though there is anecdotal evidence that in fact the cars being turned in are driven less than average.   Under these assumptions, the cost may be as high as $600-$1000 per ton.

The analysis looks pretty thoughtful, with the proviso (which the author is the first to make) that data on the program and cars bought/turned-in is still sketchy.  The interesting part was that there were no reasonable assumptions that even got the price within an order of magnitude of the $28 per ton clearing price the CBO estimates under cap-and-trade.

As a CO2 reduction program, this is the equivalent of the military's $700 toilet seats.  But of course we all know that no one ever really considered this an environmental or even stimulus bill.   This was always first and foremost 1) another Easter egg subsidy for the middle class and 2) a back door way to subsidize GM and Chrysler to try to make the Administration's investment in them look better.

** This is straight supply and demand -- reduce the cost of miles driven, and people will drive more miles.

Cooking the Books on Cash for Clunkers

From CNN via NRO:

NEW YORK (CNNMoney.com) "” What are people trading their clunkers in for? It depends on who you ask.

The government's results showed small cars as the top choice for shoppers looking for Cash for Clunker deals. But an independent analysis by Edmunds.com disputed those results, and showed that two full-size trucks and a small crossover SUV were actually among the top-ten buys.

The discrepancy is a result of the methods used. Edmunds.com uses traditional sales measurements, tallying sales by make and model. The government uses a more arcane measurement method that subdivides models according to engine and transmission types, counting them as separate models.

For example, the Ford Escape is available in six different versions including two- and four-wheel drive and hybrid versions. The government counts each version as a different vehicle using guidelines from the Environmental Protection Agency. Only the front wheel drive, non-hybrid version made the government's top ten list.

The Ford Escape crossover SUV, instead of being the seventh-most popular vehicle under the program, as the government ranked it, was actually the best seller, according to Edmunds.com. The government pegged the Ford Focus as the top seller.

Trucks tend to be available in more variations than cars. That's because truck buyers have a wider variety of needs than car buyers, General Motors spokesman Brian Goebel said.

"There's just so many different uses for the truck, both retail and commercial, than with car purchasers," he said.

The Edmunds rankings, shown in the NRO link above, actually solve one problem for the Obama administration but create another.  The Edmunds list has far fewer foreign cars, overcoming the criticism the program has gotten (not from me!) for promoting sales of non-American nameplates.  But it creates another problem, in that most of the cars on the Edmunds list are relatively low MPG, obviating the whole point of the program.

Clunker Rent Seeking

I thought this was pretty illuminating, from Tim Carney via Hit and Run.  He is writing about lobbying efforts for and against an extension of cash for clunkers:

One lobbyist for this bill was Nucor Steel. In Cayuga County, N.Y., Nucor turns scrap steel into sheet metal and other steel products. The clunkers are now becoming a subsidized feedstock for Nucor, which helps explain why Sen. Chuck Schumer, D-N.Y., has led the push for $2 billion extra in clunker cash.

Then there's Enterprise Rent-a-Car also backing the bill, supposedly out of solidarity with automakers. But Enterprise sells its rental cars after a few years. As a rental firm that buys its cars new, Enterprise benefits every time someone else scraps a used car.

On the other side of the lobbying debate were non-dealer auto-repair shops, whose businesses depend on used or older cars, which the owners don't take to the dealer for repair. Also, the Automotive Aftermarket Industry Association opposed the bill.

These are the guys who can sell you the headlight for your 1998 Ford Taurus, or who rebuild an engine out of a junked car.

Shredding old cars saps both their clientele and their supply of old transmissions to rebuild.

State Science Institute

A number of folks, including myself but more prominently Megan McArdle, have argued that a big problem with nationalized health care schemes is that these plans threaten drug innovation in the US  (which is really the last remaining source of drug innovation in the whole world).

The argument is that nationalization schemes will likely hammer drug prices through price controls down to marginal cost, eliminating any profit motive for expensive drug development.  Further, new drugs will be hampered by having to convince government health care czars that the drug should be allowed under proposed proscriptive, top-down systems of allowed medical procedures.  Risk-adverse beauracrats faced with inevitable budget overruns are unlikely to take the chances with new procedures that the private world takes every day.  (And if you don't believe that budgets will be immediately overrun, look at cash-for clunkers, where 5 months of funds were used up in 5 days -- people may not like the government, but they will take free money and services in near infinite amounts).

Well, I had thought that the response to this argument from health care "reform" supporters would have been something like "private incentives to develop drugs will still exist because of X or Y."   But apparently, they have given up on that argument and jumped all the way to the argument that even without any private drug companies, Dr. Robert Stadler and the State Science Institute will do all the drug development we need.

Megan McArdle responds in depth here.  I think there is a simpler argument.  Look at something like computers or machine tools.  Innovation in these free markets occurs all over the world, and new inventions and products are as likely to come from Korea or Japan or Germany than from the US.  But in the world of pharmaceuticals and new medical devices, a wildly disproportionate share come in the US, the last semi-free health care market in the world.  And even those new products developped in other countries are funded and capitalized based on their profit potential in the US.

Raising Car Prices for the Poor

I had read a couple of articles positing that by destroying low value cars in the "cash for clunkers program,"  the government was hurting the poor by removing the supply of sub-$5000 used cars from the market.  But what I did not realize is that this program further requires that the engines themselves be rendered useless, so that they cannot be used for parts or rebuilt replacement engines.

The automotive death sentences are meant to ensure that gas-guzzling old models make no return to the road. As sodium silicate disables an entire generation of junkyard-bound cars, the price of used engines will likely skyrocket, predicts Michael Wilson, executive vice president of the Automotive Recyclers Association. "It's the law of supply and demand."

Good plan.  The Journal has a good article about how this sodium silicate process was selected to destroy cars.  I am left wondering if engine parts can even be recycled economically for their metal after the treatment.

$10 of Paperwork to Save $1

Mark Perry links a story on the "cash for clunkers" program, including a small taste of the 136-pages of rules, regulations, and procedures dealers must follow to qualify for the payment.