Government Spending

The Silver Lining of Cash for Clunkers: Studies in Stupid Stimulus Spending

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There was never a lot to love about last summer's Cash for Clunkers program. We pointed out the ways it could be scammed, how it made used cars more expensive, destroyed useful goods, and even its backers admitted the claims about environmental benefits were most a bunch of hot air—and last we checked it was threatening to spawn lookalikes.

But finally, someone has found a silver lining. The excellent Coyote Blog sums it up:

I have found a reason to love the Cash for Clunkers program:  it is a fabulous demonstration project for just how utterly pointless government stimulus programs can be.  Stimulus programs tend to be hard to evaluate in our complex economy — sort of like trying to calculate the effect of a butterfly flapping its wings on world climate.  But since cash for clunkers only lasted a few weeks and hit only one industry, we can learn a lot about the effectiveness of government stimulus.

clunk

You'll notice that the dotted line—which simply averages the month o' clunkers and the month after—lands pretty much where the trend line would have been without that $3 billion in federal spending.

Via Reason contributor Will Wilkinson.

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  1. Awesome graph. Too bad it won’t be a damn bit of difference to anyone in power.

    1. I saved it for future use.

  2. I seriously think we should outfit every politician with a shock collar that shocks him every time he says the words “prime the pump”.

    1. With Clinton, that might have had multiple meanings.

      1. And he might have enjoyed the collar.

  3. Is silver the right material for the lining in this situation? Lead Lining? Rusty Lining? Fecal Lining?

  4. Bob Dole uses that same graph to chart his viagra use

  5. If only the stimulus were twice as big. Then it would have worked!

    1. Do you mean twice as big in girth? Or length?

  6. But where is the graph showing the multiplier effect for that money, huh, Ms. Mangu-Ward? HUH?

  7. So cash for clunkers was an expensive government program that accomplised nothing? I am Jack’s complete lack of surprise.

    No way this will happen with Obamacare. No sir.

    1. Oh, it accomplished something: it allowed a bunch of people to get a new car for thousands of dollars off…at the rest of our expense.

      That’s what it accomplished.

      1. To be fair, the dealers managed to get some of that money from us too.

        1. Isn’t the point of this that the dealers didn’t end up selling anymore cars than they would have anyway?
          So, AFAICT, they got nothing extra and a lot of paperwork and hassle to recover the money they already rebated. OTOH, if they do the financing themselves, instead of getting the the “extra” money at the end of the loan term, they get it closer to the start.. Also depends on whether they allowed people to use the credit as part of the down payment.

          1. Isn’t the point of this that the dealers didn’t end up selling anymore cars than they would have anyway?
            So, AFAICT, they got nothing extra and a lot of paperwork and hassle to recover the money they already rebated.

            Non sequitur. Even if they do not sell any additional cars, it is almost certain that they were able to raise prices on the cars that they did sell in order to capture part of the $3,000 or $4,000.

            If you give people money that can only be spent on cars, the people will get some of the benefit, and the sellers will get some of the benefit by raising prices. The same is true if you give the money directly to the dealers. How the benefit is distributed (the incidence) depends on features of supply and demand and the market, but only slightly on whom you endow.

            1. The graph above is in sales in dollars, not cars moved. If the take went up, the gross number of cars sold would have to drop.
              I will concede that at least some dealers in high demand areas likely pocketed some extra amount, though I don’t think it was much. Others likely had more interest in getting inventory off their lot than trying to skim a few bucks in a low demand area. What those numbers are, I could not say.

              1. The graph above is in sales in dollars, not cars moved. If the take went up, the gross number of cars sold would have to drop.

                No, not necessarily. You’re first making the mistake of assuming that the eyeball estimate dotted line is precise enough to make those sort of detailed conclusions, instead of broad generalizations. If the dealers got $500 or $1000 extra per car, then the similar graph showing cars sold would look just as even with the same amount of pull-forward.

                1. I don’t think either of us is going to “win” based on the evidence given.
                  However, I will note that a 5% increase* in price would show up as more than $2,500 million on the graph, or half way between the horizontal lines. That would definitely be noticeable. Even half of that would be a significant portion of the swing.

                  We can argue about what might or might not have happened, but an average of $1000/car would show up, and $500 would also likely show up.

                  * – granted that this is at the edge of your claim, I just wanted to keep the number simple.

    2. We managed to destroy a lot of cheap cars that poor people would have used.

      yay! fuck the poor!

    3. I am Jack’s complete lack of surprise.

      You should read the book it is way better.

  8. The best part about the graph is that the arrow kinda looks like a top hat.

    1. Libertarians all wear top-hats. Monocles, for now, are still optional.

      1. But, what are the rules on long black cloaks and canes?

        1. or thin handlebar mustaches?

      2. Monocles are NOT optional.

        Do not listen to NutraSweet, he has terrible fashion sense.

        1. I traded in my monocle for a high-precision focusing, self-targeting optical tracker for my laser-augmented eye.

          I can torch a poor person with it from 500 yards.

    2. That was my first thought, strangely enough.

    3. I just saw that when I came back to this thread. Must be our inner villains.

    4. And it points out the dunce cap, which is a nice touch I think.

      1. Just what kind of a strid are you?

        1. If you must know.

          Webster’s Dictionary, 1913 edition:
          Strid n. A narrow passage between precipitous rocks or banks, which looks as if it might be crossed at a stride. Prov. Eng. Howitt.

    5. I thought it was a top hat until you mentioned the arrow.

  9. THIS DATA PROVES NOTHING! AVERT YOUR EYES!
    YOU HAVE BEEN WARNED.

  10. It’s not about selling cars or saving the environment or any other such loathsome pecuniary concerns. It’s about spreading good will and hope. It’s about reinvigorating the economy via “good vibrations”. We all know that the ‘rational market’ theory is dead. And perception *creates* reality… haven’t y’all read The Secret?

    Anyway, that’s what the waitress at TGIF’s told me. She should know, with her recent graduate degree in “Western Culture is Evil!” and all.

    1. It’s about reinvigorating the economy via “good vibrations”

      Playing the Beach Boys tune of the same name would have as much (if not more) effect in that regard.

      1. “Playing the Beach Boys tune of the same name would have as much (if not more) effect in that regard.”

        You’re probably right. But the $6.5B it would take for R&D for this plan might be hard to swallow for those stupid tea baggers.

        1. I can cut maybe $500mil off that pricetag and still get it done by the deadline.

  11. For a great lesson in Reason narrative-creation techniques, click on the “how it made used cars more expensive” link. Pretty typical Reason.

    Does it link to some hard data that C4C made used cars more expensive? No. Does it link to an article that links to some hard data that C4C made used cars more expensive? No again! Does it link to a fellow traveler’s blog post that links to an article that links to some hard data that C4C made used cars more expensive? Not even.

    It links to a blog post that doesn’t mention C4C, that links to an article that doesn’t mention C4C! Not once! It does, however, state that “As car buyers headed to the used side of the dealer’s lot to save money, the supply tightened and prices rose. And as new-car sales suffered, the number of trade-ins dwindled, making the pickings even slimmer.”

    That seems like an overall trend that would’ve happened with or without C4C to me. It also sounds like an argument could me made that the 700k cars (that all got less than 20 MPG aggregate) that might or might not have made it onto the market would have added to this this trend, but I see no data! Only flying leaps of correlation!

    Anyhow, follow any reason link and you’re likely to find yourself on a similar wild goose chase.

    1. Sorry. Not all Reason writers are this lazy. I should say follow any Mangu-Ward or Welch link. Balko and Bailey are cool. Suderman, you cool.

    2. Umm, it’s common sense. Destroy a bunch of used cars (mostly mid-range cars, not clunkers; the top cars and trucks were the 1997 Mercury Grand Marquis and 1996 Ford Explorer, respectively) and the price of the remaining ones will go up. At the moment, the mid-range of the used car market is slim pickings, compared to the high end of “almost new” cars and craiglist-worthy beaters (i.e. real clunkers), whose owners cannot afford a new car, even with C4C. Want some data? Go try to find a 1997 Mercury Grand Marquis for sale at a decent price.

    3. Also, Reason writers fail to prove that gravity exists and how it functions each time they allude to it.

    4. lets destroy 50 million of the cheapest cars in the United States…can you point me to any hyperlinks that this would raise prices? didn’t think so …

      ok lets do this..I think it will help poor people by creating more green jobs…can you PROVE that I am wrong? This new plan gives me hope.

  12. Wait, I thought gummint regulation and spending smoothed out the wild gyrations of the market.

  13. My top hat needs to be cleaned and reblocked; is there a government subsidy for that?

    1. You mean one of your top hats, surely. I simply can’t believe that we’d let a commenter in who only owned but a single top hat.

  14. When not wearing the top hat, I generally wear the pointy metal one with the horns.

    1. And sing Kill the Wabbit to Wagner?

  15. How about we get a little better source for our data than a random blog?

    http://www.whitehouse.gov/blog…..k-intended

    Now, the whole point of this exercise was to “pull forward” purchases. Polls of actual CFC users indicated that people would have average kept the vehicle for another 2.87 years, not weeks. This makes complete sense.

    In fact, if my 19 mpg clunker had instead gotten 18 mpg, I would have cashed it. This would have “pulled forward” the purchase of my next vehicle from whenever it died (which turned out to be December) to July. I am sure something similar is true of most CFC users, many of whom would still be driving the clunker yet today. The idea that most of the purchases were just pulled forward a month is patently silly.

    1. Wow, you’re right. Thank goodness CFC saved all those jobs and put the economy back on track. It wasn’t just a completely asinine waste of money and resources. /sarcasm

    2. That makes more sense… it would be very strange if the big cash giveaway only induced people who would have traded in within a couple months.

      Still, CFC remains the #1 dumb economics move I’m aware of. They destroyed a bunch of valuable stuff, and paid a few billion $’s to do it.

      If the economy needed a cash infusion to get it through a brief tough time, it would be better to just give away the money, rather than demanding a penance of destroyed cars.

    3. How about we get a little better source for our data than a random blog?

      Yes, that would be nice.

      http://www.whitehouse.gov/blog…..k-intended

      HAHAHAHAHAHAHAHAHAH!!!1!1!!

  16. Hey guys, I’m no fan of government regulation, but you have all missed the point of this one.

    The point of the law was not to stimulate the car-buying economy (as so many of you have pointed out, it did have that effect, but of course it later rebounded), but rather to stop the polluting old clunkers from spewing more carbon into the atmosphere. How to do that? Pay people to “kill” their cars.

    Please note that I am not convinced that global warming is caused by carbon production and neither am I a fan of government solutions. They generally don’t work.

    But you need to be fair in your arguments, or you are just contributing to the braying. You need to realize the reason for the law was environmental, not economic. On an environmental level, to those who believe we are responsible for global warming, it succeeded.

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