Thursday, May 13, 2010

Cash For Clunkers Is A Sterling Example

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 US 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 US consumption.

More importantly, 5 million barrels of oil at $70 per barrel costs about $350 million dollars

So, the government paid $3 billion of our tax dollars to save $350 million.

We spent $8.57 for every dollar we saved.

I'm pretty sure they will do a great job with our health care, though.

1 comment:

  1. This is not as bad a deal as you think.

    That $350M is a savings per year, so we'd save it every year over the life of the car.

    So let's assume the cars all last ten years (as if Detroit could build a car to last ten years), and calculate the present value of $350 million received each year, at the end of the year, using a discount rate of 3 percent (which is low).

    That comes out to $2.9 billion. So we spent $3 billion and lost $1M. Assuming that the 3 percent is realistic (the higher the discount rate, the lower the return).

    Either way, it begs the question, "why?"

    Perhaps to further bleed the wealth away from the US middle class through increased taxes and inflation?

    Oh I'm sorry-is that just crazy talk?