September 16, 2009
I know bashing away at the Cash for Clunkers program is getting old, but I think this latest jab to the solar plexus by Ed Steer is worth noting:
A clunker that travels 12,000 miles a year at 15 mpg uses 800 gallons of gas a year.
A vehicle that travels 12,000 miles a year at 25 mpg uses 480 gallons a year.
So, the average Cash for Clunkers transaction will reduce U.S. gasoline consumption by 320 gallons per year.
They claim 700,000 vehicles so that’s 224 million gallons saved per year.
That equates to a bit over 5 million barrels of oil.
5 million barrels is about 5 hours worth of U.S. consumption.
More importantly, 5 million barrels of oil at $70 per barrel cost about $350 million dollars.
So, the government paid $3 billion of our tax dollars to save $350 million.
The government spent $8.57 for every dollar saved.
Cash for Clunkers, as well as Obama’s recent Chinese tire tariff, are, on one level, isolated cases, gifts to favored labor unions, which don’t in the least reflect a systematic “protectionist” or “nationalist” economic agenda. (And they’re both, of course, laden with unintended consequences: Americans used a lot of the CforC moolah to buy Toyotas and Hondas, causing the trade deficit to rise for the first time in months; in turn, the Chinese seem to have inched ever closer to dumping their dollar reserves after Obama’s latest “protectionist” foray.)
CforC is indicative of something much broader, and more essential to the American economy, however, in the way that it reveals the diminishing returns of private and public debt. As Addison Wiggin has calculated, ?Under Mr. Greenspan?s term, U.S. credit and debt added up to $8.505 trillion. That means it took $4.80 of new debt to create one dollar of GDP. And now, with the burden of U.S. credit and debt up to 9.149 trillion under his successor, Ben Bernanke, it will take more than $5 to create one dollar of GDP.? In the past months we?ve added an additional 2 trillion of debt and gotten nada out the other end. (Wall Streeters have merely gotten some zero-interest credit to trade with.)
Oh, pardon me, I forgot. We’re in the midst of a recovery.
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