"The analysis contained here is necessarily speculative, because little can be said with confidence about two key questions: what is the time frame over which the 'payback' effect will occur, and what would the pace of clunker-replacement-induced demand for new cars have been in the absence of the program? The pace of motor vehicle sales and production in coming months will help narrow the range of plausible interpretations of the effects of the program, as will data from the Department of Transportation on the results of a survey of CARS participants who were asked about what their car-buying plans would have been. There may also have been important but harder to measure economic benefits of the CARS program that are not captured in our analysis, for example on consumer confidence. And of course, the program’s environmental benefits are not accounted for in our analysis.
We nevertheless believe that our analysis offers a reasonable starting point for assessing the program’s economic impact. At a minimum, it shows that if the sales payback is not immediate and complete, the program can be expected to have produced a noticeable impact on GDP growth."
Nothing about the flow of money associated with that destruction undoes the destruction. That the rebates are so high that Stan's friends are now making a whimsical purchase just further illustrates the idiocy of the program as a use for government funds.
University of California Professor James Hamilton posits that the destruction of "clunkers" is not a way towards making the nation wealthier. He also doubts the stated environmental benefits of the program.
The program has been popular with consumers and car dealers. Congress initially allocated $1 billion to the program, and this funding was expected to last through November 2009. Yet the program apparently committed the entire $1 billion after only four days in operation, and many interested consumers have not yet been able to consummate a deal.
Before government extends Cash for Clunkers to more products, it might be a good idea to examine the original. The fact that Washington and the buyers who took advantage of Cash for Clunkers are gaga is hardly evidence that it was in the public interest.
On June 24, 2009, President Obama signed into law the Car Allowance Rebate System (CARS, commonly known as 'Cash-For-Clunkers'), one of several stimulus programs whose purpose was to shift expenditures.
"Here's an idea: Let's give $50,000 to anyone looking to upgrade to a brand-spanking-new, environmentally friendly home. All we ask in return is that you burn your previous residence into a heap of smoldering cinder."
It seems almost petty to join in the loud kvetching that has erupted in the blogosphere--at least in its more economically literate portions--since Congress reauthorized the so-called Cash for Clunkers program last week.
Edmunds.com, the premier online resource for automotive information, has determined that even if Cash for Clunkers reaches its budgeted cap, the program will only help drive about 50,000 incremental new car sales, so each one will cost taxpayers a whopping $20,000.
"'The negative effect of the administration’s ‘stimulus’ policies has been documented in a number of empirical studies,' write economists Glenn Hubbard, Greg Mankiw, John Taylor and Kevin Hassett in a paper released by the Romney campaign. But the paper only mentions two studies, and one of them, by Amir Sufi and Atif Mian, is about Cash for Clunkers, a tiny subprogram of the stimulus.
If you think the Cash for Clunkers program is confusing for dealers and buyers, you should try figuring out its impact on fuel use or carbon emissions. Despite the environmental accolades showered on the program, its environmental effects will be negligible.
According to Edmunds, light motor vehicle sales in November and December would be only about 10.5 million at an annual rate (the dashed blue line in the figure). Edmunds furthermore argued that, had the CARS program not existed, the pace of sales would have been higher, about 10.8 million.
Figure 1 shows aggregate auto purchases for the economy going back to 2004. The data are from R.L. Polk, which we describe in further detail in the next section. As Figure 1 demonstrates, there is a noticeable spike in auto purchases during the program.
Figure 2 shows that there was a large degree of variation across U.S. states in purchases under the CARS program. Each state is shaded by the ratio of total purchases under CARS scaled by 2004 auto purchases.
"I think it is pretty clear that we spent a few billion dollars making some used car owners happy (by overpaying for their vehicles) but did absolutely nothing to move the trend line in auto sales, as the program appears to have just pulled forward purchases rather than stimulated new ones."
In sum, this graph isn't meant to be a substitute for rigorous analysis on the costs and benefits of the program. Rather, it's a supplement for this kind of analysis, which has found that overall, Cash for Clunkers cost taxpayers $2,000 for each of the 665,000 cars that qualified.
Burton Abrams and George Parsons of the University of Delaware evaluate the efficiency of the recently introduced 'Cash for Clunkers' program and conclude that the cost exceeds the benefit by approximately $2000 per vehicle.
We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
The Los Angeles Times reported Thursday that the government's hugely popular Cash for Clunkers program is leaving some of the most polluting automobiles on the road. Cars built before 1984 are excluded from the program because of lobbying efforts by classic car interests.
The federally sponsored 'cash for clunkers' program allows consumers to trade in their gas guzzlers for more fuel efficient cars, and receive up to $4500 from the government. Alan Blinder pitched the idea last year as a way to reduce auto emissions and bolster the economy.
We nevertheless believe that our analysis offers a reasonable starting point for assessing the program’s economic impact. At a minimum, it shows that if the sales payback is not immediate and complete, the program can be expected to have produced a noticeable impact on GDP growth.
This link is the government's official CARS information center. The website provides a frequently asked questions page, statistics for various stages of the program and links to pieces of CARS legislation.
Edmunds.com provides the basic details of the "Cash for Clunkers" (CARS) program, including standards on trade-in and new vehicles, distinctions on differing vehicle categories and specific tax-credit figures.
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