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Cash for clunkers clunked

Did the “Cash for Clunkers” program work as advertised? It all depends on the meaning of the word “work,” I suppose.

If the definition of success means moving more cars off of dealer lots than what probably would have happened anyway, that’s good. But when looking at the marginal activity — and I believe this is the correct way of looking at things — the cost of moving the additional cars is astonishingly high.

An Edmunds.com article calculates the cost per car for the clunkers program in a different way than the government does, and finds this:

Nearly 690,000 vehicles were sold during the Cash for Clunkers program, officially known as the Car Allowance Rebate System (CARS), but Edmunds.com analysts indicate that only 125,000 of the sales were incremental. The rest of the sales would have happened anyway. Analysts divided three billion dollars by 125,000 vehicles to arrive at the average $24,000 per vehicle sold. The average transaction price in August was $26,915 minus an average cash rebate of $1,667.

Not surprisingly, the Obama administration attacked the authors of this article.

This is just the latest evidence that the clunkers program didn’t really increase the wealth of our country. Writing at the Foundation for Economic Education, Bruce Yandle doubts the glowing assessment of effectiveness of the program:

The doubt arises for at least three reasons. First, the program was supported politically primarily for its much touted environmental benefits. Carbon emissions would be reduced. But the reduction costs are at least ten times higher than alternate ways of removing carbon. Second, there is Bastiat’s parable of the broken window to consider. And third, there is a serious matter of eroding social norms for conserving wealth. A crushed clunker with a frozen engine is lost capital. … The cost per ton of carbon reduced could reach $500 under a set of normal values for critical variables. The cost estimate was $237 per ton under best case conditions. The much celebrated Waxman-Markey cap-and-trade carbon-emission control legislation estimates the cost of reducing a ton of carbon to be $28 when done across U.S. industries. Yes, we are getting carbon-emission reductions by way of clunker reduction, but we are paying a pretty penny for it. … Before touting the total benefits of clunkers, we must take account of the destroyed vehicles and engines that represented part of the wealth of the nation. As Tony Liller, vice president for Goodwill, put it: “They’re crushing these cars, and they’re perfectly good. These are cars the poor need to buy.”

It’s very difficult for the government to intervene in the economy and produce a net positive result. Even if it could, the harmful effects of taking one person’s money and giving it to another so they can get a discount on a new car far outweigh the small economic benefit that might be realized.

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4 Comments

  1. Pat October 30, 2009

    The other problem with the Clunkers program is that the vast majority of cars were financed. Local dealers are reserved in that they feel a significant number of the “new” cars will be back on the market as the owners couldn’t afford them to begin with. Guess time will tell.

  2. Hal (GT) October 30, 2009

    So basically we bought cars for people…. Great. Just great.

    Perfect example how the government is terribly unqualified to handle money.

    Of course there’s still the cash for appliances program and the home tax credit and loans.

    Where does a person get in line?

  3. Showalter November 1, 2009

    One must stop the give away of OUR money.

  4. Cars4Charities November 1, 2009

    Cash for clunkers cost taxpayers, car repair shops and car donation a lot of money.

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