In this article, Edmunds.com concludes that the cost to taxpayers for each additional vehicle sold during “Cash-for-Clunkers” was around $24,000 (based on analysis of the number of vehicles that would have been sold in the same period without C4C).
Does this amount (which the article suggests is only slightly less than the average cost of a new vehicle) mean that the program achieved a poor return per taxpayer dollar invested? Could the money have done better elsewhere?
Depends on whether you want to have a domestic auto industry and would have preferred thousands of dealerships going out of business. Stimulus money has two purposes: one is address the issues it is spent on (for example repairing the infrastructure, saving the auto industry, etc). The other is to stimulate the economy by having the people who get stimulus funds buy things from people who then get to buy more stuff from other people. Depending on what you spend it on, the spending can have a different “multiplier”. For example, $100 of direct spending may result in $350 of additional benefit.
If it were me, I would have spent the money on things like insulating peoples homes so we don’t send so much money overseas to terrorists, burying electric and telephone wires so that hurricanes and other natural disaster cause less damage. On the other hand, money spent on the cash for clunker program is better than money wasted fighting stupid wars overseas.
First of all, no one has suggested a multiplier that high. I think Christina Romer’s estimate for a multiplier was around 1.5 And plenty of economists dispute that. Other studies have shown historical multipliers of less than one.
Second, ‘Cash for Clunkers’ did not save the auto industry or the dealerships. There is increasing evidence that most of the increased sales came from A) people deferring purchases while waiting for the program, and B) people moving up their purchases to take advantage of the program.
Edmunds data shows this:
Sales percentage change as compared to forecast:
June: -.13
July: 1.1
August: 3.61
September: -1.44
October: -.49
November: -.42 (forecast)
December: -.24 (forecast)
The administration, in its increasingly dishonest description of the effect of its programs, tried to take full credit for the increase in sales in July and August, and no blame for the decreases in sales around those months. Edmunds data shows that Cash for Clunkers did have significant distributional effect, and therefore the net increase in car sales is not 690,000 as the administration claimed, but only 125,000. That made this an incredibly expensive program compared to the benefits it brought.
It could even wind up hurting the car companies, because these types of programs distort the market. Everyone was trumpeting the fact that the car companies ramped up production to meet demand - but did they count on sales dropping below average after the program ended? If not, they could be stuck with a glut of cars they can’t move. The Obama administration laughingly tried to claim that some of the sales came from people responding to the ‘good press’ around cash for clunkers, but who wound up buying a vehicle that didn’t qualify. That seems unlikely at best. More likely is that people who missed the deal will now not buy a car at all because they feel like they’ll be paying more than they should have. Or if people come to believe that government will offer another C4C in the future, they may hold out for it. A classic moral hazard.
The problem with stimulus packages is like the problem with amphetemines - they give you a temporary burst of energy, but the hangover sucks. In some cases, perhaps the burst of energy is worth it. But like amphetamines, the danger is that you keep taking them to keep the speed going, but eventually you crash.
We just have to hope that the hangover doesn’t show up before the economy recovers, because if it does the ‘stimulus’ will wind up being immensely destructive.
But don’t worry, the politicians say they can ‘handle it’. They’re not addicted. Nosirree.
If it were me, I wouldn’t have spent the money at all. Every dollar spent helping someone buy a new car is a dollar that won’t be available in the future for people’s health care, retirement, or the next emergency. This money doesn’t appear out of thin air. in a year, or five years, or a decade, the bills are going to come due, and long after the cars purchased under Cash for Clunkers are rusting in a scrap heap, your children are going to be writing checks for it.
This is a common kind of statement these days, and valid in a limited way. But I find this sort of thinking troubling.
What if those wars really are stupid - so stupid that something can be better and yet still quite wretchedly bad? Establishing the spending on wars as some sort of gold standard, and using this to justify other extravagant spending by comparison seems dubious indeed.
And should we not consider the possibility that wasteful war spending has placed us in the position of being a trifle short on available funds to fling about on other things?
Sometimes you inject adrenalin to stop the patient from dying.
Well yeah, that’s kinda my point. We spent huge amounts of money on two wars, while still refusing to increase revenue through increased taxes. Then, when we were on the verge of a recession, we faced three really bad scenarios:
Hell of a choice. Normally we would have reduced the deficit while the economy was strong so that we could use short-term deficit spending when it grew weak.
Of course there is a 4th scenario as well: increase taxes on the wealthy and use it pay down the deficit. But this was never on the table because the right has convinced the rabble that taxes are always bad.
Sam: I pulled the multiplier value for my example out of my ass, and you are much closer to the real value. Hereis a list of what one economist thought the stimulus could result in. Interesting.
Plus there is the destruction of all the cars that were traded in, and I’m sure most would’ve still gotten several years of driving out of them.
And that means what? We wasted resources and made the planet worse? We removed cars that produce greater pollution and replaced them with less polluting models and made the planet better? We removed used cars from the market so overall the demand for new cars increased (is that in the Edmunds analysis by the way)? We removed used cars from the market and poor people have to pay more to buy a car? We removed used cars from the market and the net worth of poor people increased because their car is worth more? You are missing your conclusion.
In general, if people put off buying something new, and make do with something old, that is not good for the economy. It’s also un-American 
Sounds like we should all, say, smash a window or two. The money spent replacing these would flow through the economy, stimulating left and right.
(In economics, as elsewhere, the “unseen” can be important.)
I’d be interested in seeing another evaluation of this issue. I’ve been concerned about Edmunds ever since the C4C program was unveiled - they’ve been particularly strident and seemingly biased as regards the program since that time.
Are there any other takes on the subject?
Surely if you’re already deeply in debt, the spending of large additional amounts should be something very carefully considered.
I see little evidence that C4C was. I think it would (or at least should) have been a very tough sell if the effects listed by Edmunds had been known in advance. Its supporters effectively acknowledge this, by claiming effects far beyond what the evidence shows.
C4C is now over, but the “de-stimulating” effects of the debt incurred to finance it will be with us for quite some time.
Edmunds’ analysis makes sense only if you accept their forecast auto sales. As I don’t know how they arrived at their forecast, I can’t say whether their analysis is accurate. The White House has made a point of trumpeting the 690,000 dealer transactions submitted, but clearly that isn’t the correct number to judge the program by because a good chunk of those sales would have happened anyway.
But would you agree there is a difference between a C4C program which takes the clunkers out of circulation and one that leaves them in the market? Surely the former would lead to more incremental sales.
What’s your point. Are you saying it is good that some will be forced to make new, costly purchases as opposed to buying a cheaper used car? Sure, the dealers and car makers benefit but many poor people lose.
It would - but does that make good long-term economic sense? Saying it does seems equivalent to saying its a good thing to break windows.
Good question. You could also ask the same about replacing existing windows with insulated windows. I think a stimulus was needed, but I don’t know if C4C was the the highest thing on the marginal efficiency curve. But the rust belt is in pretty bad shape after years of neglect. MI, IL, WI, IN, and OH are all tax donor states. Meanwhile we have things like textile tariffs to protect states like SC that are tax debtors. Those bastards even opposed the automaker bailout to protect the foreign car companies that have plants down there.
Can you point to anyone who was “forced” to buy a new car under this radical-socialist program?
Seriously, is this what the Left is reduced to? Willfully misinterpreting perfectly clear statements? C4C drove down auto supplies, particularly of efficient, inexpensive cars. The remainder means that average prices will go up.
Sorry, peeps. Sam Stone’s analysis was spot on and is basically driving all your arguments into the gravel. He has logic, theory, and evidence all on his side - and for that matter, Edmunds’s side. There’s simply no escaping it. You can jumpstart a car, but you can’t jumpstart an ecosystem… or an econosystem.
It means we destroyed billions of dollars in goods to create a market for new goods. Which is wasteful. Why not ask everyone to videotape themselves throwing their still working laptops and TVs down a flight of stairs so they can bring the tapes in to best buy and get a $200 coupon for new ones. Tons of peopel would love having one functioning car, and we are intentionally destroying ones that work.
As far as gas mileage going up the average mpg of cars traded in was 16mpg, the mpg of new cars bought was 25mpg. Hardly a giant leap. People were not trading in Humvees to buy Geo Metros. The mpg gains were minor.
Also considering that agriculture contributes to climate change more than transportation, people would’ve been better off just eating less red meat if they were concerned about the environment. Doing so wouldn’t have cost billions of dollars. People also could’ve bought green energy credits from utility companies, or gotten a smart meter, or invested in windmill farms, etc. There were other ways to create jobs and/or cut pollution that would’ve been a better investment.
As far as creating demand, the analysis shows most people would’ve bought new cars anyway. So the CARS program barely worked, cost billions and destroyed billions of dollars worth of automobiles that still functioned fine.
It reminds me of a question in high school about civics. The question was something like ‘what was a major irony of the great depression’ and the answer was ‘farmers were burning crops to decrease supply and increase prices while people were starving’. One of the students said ‘thats not ironic, thats sad’. Which is true. Destroying thousands of working cars to trade them in for cars with slightly better (9mpg) gas mileage when most people would’ve bought the cars anyway is a waste.
I am all for green energy and investment and I am all for government spending to grow the economy during this recession, but the CARS program was a wasteful mistake from what I can tell. We should be investing more heavily in infrastructure, the apollo alliance for green energy and other issues like that.