With per vehicle environmental benefits at $596 and the costs at $2,600 per vehicle, the clunker program is a net drain on society of roughly $2,000 per vehicle. Given the approximately 700,000 vehicles in the program, we estimate the total welfare loss to be about $1.4 billion. The welfare loss would be even greater if we fine tuned our estimate of the social cost per gallon to account for the spatial mix of clunkers. Clunkers, especially the trucks that comprise a large percentage of the traded-in vehicles, may have been retired disproportionately from rural locations where the social costs of pollutants are significantly lower. Also, if the average value of clunkers exceeds our conservative figure of $1000, then cost of the program would be higher. Even if the environmental gains were double our estimate, the net drain would still be close to $1 billion. While a more rigorous analysis would no doubt adjust these figures, we doubt that the basic conclusion would change.

Burton Abrams and George Parsons of the University of Delaware, in the newest edition of The Economists' Voice. This includes some gain to those who cashed in clunkers, who receive a transfer from taxpayers. It's hard to imagine how this program did not end up throwing taxpayer money down the rathole, but if you throw $1 down the hole for every $1 you give to the UAW, and you're an elected official with lots of money from that union, that might be a deal you'd make.

Labels: economics, Obama, unions