The government’s so-called Cash for Clunkers program has been extremely popular with consumers. So much so that the program nearly collapsed when only a few days old due to a run on the funds. So do we conclude from that the program was a success? I’m not so sure. It’s not clear that being popular is the same as being successful, even in politics.
One of the alleged purposes of the program was environmental. It would get old inefficient cars off the road in favor of newer cleaner models. Yet the net gain here is not clear. Especially when factoring in the carbon footprints associated with recycling the clunkers and manufacturing the new cars. If you really want to help the environment, drive less. We know from past experience that expensive gas results in less driving. People car pool. People think twice about whether they really need to make that extra trip to the store. People take more mass transit. People buy more efficient cars. All this at no government expense. In fact, if we taxed gas up to $4/gallon, we’d have funding for many government programs and help the environment at the same time. But that would be unpopular.
The Cash for Clunkers program amounted to another bail-out program for auto makers, cloaked as a handout to consumers. It’s not clear the auto makers required the additional aid, but what consumer was going to turn down the cash? And that’s what they were counting on. This despite the reality that many people taking the “clunker cash” are the same ones vocal about government largess. Arguing against social programs like welfare and healthcare reform as too expensive.
Studies of game theory (a type of applied math) have repeatedly shown that people opt for equity over profit. That is, it’s not so much about how much I get, but rather it’s about making sure someone else doesn’t get more. This phenomenon directly explains the success of Cash for Clunkers. It wasn’t about whether the program was needed, but since it was there, I want my share. And I feel good about the program since I got my fair share.
This same game theory implication is at play with popularity and acceptance of other programs as well. Programs that benefit everyone such as Social Security, education, roads, are almost universally popular. While programs that seem to benefit a minority such as welfare, farm subsidies, and “pork” projects, are often maligned.
It’s instructive to view healthcare reform in this light. One of the mantras repeated over and over is that you can keep your existing healthcare if you are happy with it. The problem is, the majority of us are. The costs and inefficiencies of that healthcare are largely hidden from us. And those with insufficient or no healthcare are the minority. So at face value, healthcare looks like it’s a handout to the minority. Where’s my fair share? Game theory would predict that most people would oppose such a program.
However, the reality is that healthcare costs are crippling the economy, albeit indirectly. This impacts all of us, but the impacts are subtle. For reform to succeed, these costs have to come down. A program that merely insures more people under the existing structure would be untenable. But for the program to be popular, the cost savings must be apparent to the citizenry.
The existing program doesn’t shine enough light on how it will contain costs. It needs to be specific about how those gains will be made, and further, how we all get our share of that. The vaguery not only limits the popularity of the program, but invites inane assertions such as costs will be contained by euthanizing the seniors.
The economic stimulus program faces similar problems. Bailing out the banks looked like a handout to the minority. The benefit to us was indirect and pretty intangible. To gain popular support for the program, the administration needs to show how we all benefited equitably from that investment.
In the end, maybe what the Obama team needs to get some of their programs across is less politicians and marketing people and more mathematicians.