My 1992 Audi

My EWOT this week is in tribute to my first car, a 1992 Audi 100s which lasted for 170,000 miles. It passed away right before I left for college, after reliably running for 18 years.

Through all the breakdowns and expenses as the car slowly started to fail, I fought for it. My mom wanted to scrap the car. In her opinion it was well past due. With each expense, she became more convinced that we should scrap it. However, she clearly misunderstood the economic reasons why the car was a better pick than any new car off the lot. Firstly, my car was so old that it had no insurance. So we saved plenty there. On to of this, even as the expenses started adding up, there was no way it would reach a sum approaching the cost of a new vehicle. Each repair was an economically justifiable investment with a good return. Besides, we all knew I only drove it around town. Any farther and I would begin to see smoke. Come out of the front. Then again, maybe that is why she was worried. But anyway, a local car was really all I needed, so why spring for a brand new one? As Rizzo said in class today, this would only be beneficial if the car was completely shot, which it wasn't.

If only I had known what I had known today, then maybe I could have saved the car for a little bit longer.

Interestingly enough, I stumbled upon an old blog post on Rizzo's site that talked about the "Cash for Clunkers" program. When the car wouldn't sell, or, to be more accurate, would break down every time we had a deal in the works, we thought about trading it in. If the car were eligible, odds are good that it would have been turned in as a clunker. Unfortunately, it was too old and had too many miles. Essentially, it was too much of a clunker. Really?

But for a moment, let's pretend we traded it in. With the $4500 credit and new need for a car, I can guarantee that we would have shopped around and spent on a brand new vehicle almost immediately. So that's money put back into the economy, right? My Audi certainly was doing the economy no good, though it helped me get around. And a brand new car is good for me and the dealer. It's a win-win. Where's the problem?

There are a few. First, you have to follow the resources, as Rizzo told us in class. If we had turned the car in to have it turned to scrap metal, there would be one less car on the road today. Why not just give a $4500 credit and let us keep the car? Trust me, I loved that car. I would have kept it. Maybe we could have even salvaged it. Then, we would have had two cars instead of one, and the same amount of money in our pocket compared to the turn-in program. So there is the first problem. The second is more long term. Within a month of the car actually breaking down, long after we could sell it or turn it in, we went out and bought a brand new one. So in the long-run, either way we would have bought a new car. Had we bought one then, we wouldn't have bought one later. So in the end, the money pumped back into the economy would have been equivalent at best, though I will argue that it would have been less. There was a cap on the price of the car you could buy using the program's credit. It was $45,000. The car we bought later was more expensive. So, even under Keynesian economics, the net contribution to the economy would have been actually less had we taken advantage of "Cash for Clunkers". And the government did not have to pay a $4500 subsidy on our new car, which saved them money. Simply put, "Cash for Clunkers" was not a stimulative program.

For all those who disagree, let's just look at the end results. "Cash for Clunkers" would have taken the car and junked it, maybe recycling the engine. We donated our car to the local fire station so that they could use it for training, training that will help save them learn how to pull living victims from burning or crushed cars. It is training that will help them save the lives of crash victims. Which is the more useful contribution to society?