I wrote yesterday about possible causes for the recent decline in highway crashes. The decline in crashes also has important economic effects: with fewer injuries, there is an improvement in productivity, a decline in health care costs, a decline in the demand for medical services, a decline in disability and life insurance payments, an increase in annuity and retirement payments, an increase in taxes collected, an increase in the size of the work force, and so on.
The lower rate of crashes has surely also affected the pace of auto sales, which also fell off sharply in 2009. Many drivers don’t shop for a new car until the car they have is ruined, an event that didn’t happen as often. This reduces the demand for new and used cars. It also increases the supply of used cars, as more people who buy a car have a car to trade in. This helps to explain why the inventory of used cars did not decline last year even as many car shoppers passed up new cars to buy used ones.
I am not so sure that car crashes will come back when the job market improves and more people are driving to work. Long-term trends in driver skill, traffic reports, automobile instrument panels, and road quality are likely to lead to further reductions in accidents. From this effect alone, about a third of the reduction in car sales we saw in 2009 could be permanent.
