Cash For Clunkers: Still A Bad Idea

by Gherald on 29 October 2009

With 85% of 1st time home buyers who were eligible to collect the tax credit planning to buy a home anyway, the Brookings institute estimates that the $8,000 credit equates to a cost to the taxpayer of $43,000 per home. This is based on the belief that 85% of the almost 2mm buyers are getting free money. Edmonds.com…is estimating that the Cash for Clunkers program cost taxpayers $24,000 per vehicle sold. They estimate that 82% of sales would have happened anyway and thus the handout of up to $4,500 really only enticed 18% of the buyers of 690k vehicles sold under the program.

I’m curious to know whether any readers here dispute such figures, or still believe—despite the grave waste previously discussed—that C4C was, somehow, an economically or environmentally sound and efficient stimulus.

…rather than a wasteful but politically popular program which merely succeeded in pleasing misguided leftists, new car buyers, and dealers—as it appears to me.

(via Andrew)

{ 11 comments }

Gherald filed this under: Economy, Environment, Government, Stupidity

kevinista says:

October 29, 2009 at 6:08 pm

theyre telling us how much it costs? I thought we knew that already…

seems like it worked fine…

dont understand your last sentence…misguided how?

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- Gherald says:
  
  October 29, 2009 at 6:45 pm
  
  A cost of $24k per extra vehicle sold (the stimulus effect) for 124k vehicles, plus the waste discussed in the link (which you thought was an overestimate, but is still quite substantial).
  
  I don't see how this $3 billion expenditure to unworthy recipients while destroying at least $1 billion worth of economic value (Cato put it as high as $2.25b.) is even remotely close to sound public policy for such a small and temporary increase in car sales.
  
  Misguided was my polite understatement.
  
  Reply
  - kevinista says:
    
    October 29, 2009 at 7:19 pm
    
    this program was intended to help and encourage people to get new cars, no way to know how many it really encouraged that wouldnt happened otherwise (the 18% number is jsut an estimate, as bad as anybody else's) the only news you seem to be telling us here is that its more expensive than we thought?…well okay…
    
    after billions in handouts to wall street; 3 billion for regular people to buy cars is hardly keeping me up at night
    
    Reply
    - Gherald says:
      
      October 29, 2009 at 7:25 pm
      
      Oh come on, spare us the fallacy about two wrongs making a right. Moreover nobody outside of Wall Street likes their bailouts, but it was the least bad alternative and did not senselessly destroy wealth like C4C.
      
      The fact that you like "regular people who buy cars" more than the presumably irregular people on Wall Street is irrelevant to the economic analysis of what these disparate programs accomplished.
      
      Now I'm not an economist, so take this with the requisite grains of salt, but it seems to me you could give 1 million random people a $4000 gift card that expires within months and whatever they spent it on would be more stimulating (factor > 18%) and less wealth-destroying than C4C (negligible vs. an upwards of 1 billion of value destroyed in order to spend 3 billion). Such a program would also be fairer (not just targeting car buyers and dealers) and roughly as environmentally beneficial.
      
      And there are of course many much-better things that could be done with upwards of $4 billion. The point is that C4C was an egregious waste of public funds and used vehicles.
      
      It seems a triumph of leftist exuberance over rationality to believe otherwise.
      
      Reply
      - kevinista says:
        
        October 29, 2009 at 8:50 pm
        
        I see you're still very worried about those engines that were destroyed. Im not. call it destruction of wealth or whatever sounds fancy.
        
        two wrongs? I never said C4C was something wrong. I'm just saying lets get things into perspective, this was not a big program. (and by 'regular people' I just meant working class, I guess)
        
        I agree that theres better ways to stimulate, your example is pretty good. but I still dont see how this program was a total waste, it chipped in for people to get cars, and thats what it did.
        
        Reply
Metavirus says:

October 29, 2009 at 9:07 pm

And it introduced billions of dollars into the economy

Reply
- Gherald says:
  
  October 30, 2009 at 4:20 am
  
  But why did we destroy more than $1b. of value in order to stimulate the economy with $3b. ?
  
  Why are new car buyers and dealers deserving of these billions? How is this serving a worthy cause?
  
  As you and kevin argue, the program is not a total waste--it introduced money into the economy. But it did so in an egregiously wasteful way, destroying value and giving it to unworthy recipients.
  
  Kevin pointed out that perhaps people on Wall Street are less worthy. But in the case of the bailout there was no better choice (unless you were willing to close your eyes and hope things didn't go to hell)
  
  Meanwhile with C4C there were innumerable better choices. That it even made it off the drawing board--and that people were praising the program's popularity as a "success"--is a prime example of wasteful government action. Therein lies my point.
  
  Reply
  - @LibraryGrape says:
    
    October 30, 2009 at 1:25 pm
    
    it seemed to me like the point was to introduce billions of dollars quickly into the economy, which it did. were there more worthy ways it could have been done? sure. but was the basic end result achieved (more money pumped in to help a flagging economy)? yes.
    
    Reply
newpublius says:

October 29, 2009 at 9:38 pm

Unfortunately, you omitted the largest cost of these hare-brained schemes, including cash for clunkers and the $8,000 for first-time home buyers (to be continued). That is the cost of interest the United States will have accrued from the date the cash was disbursed until it is finally repaid, perhaps 50 years from now, if ever.

Remember that the United States has no cash to lend to anyone. For many years we have been a debtor nation, and now we are borrowing money from every possible source, now up to $13 trillion and climbing.

While I know that currency is fungible, it might be worth looking at the date it was borrowed, and then an estimate of the date when that currency will be repaid.

While interest rates are at rock bottom today, the coming inflation will send them up soon, when the Federal Reserve has to raise their short-term rates to avoid an immediate devaluation of the dollar.

The longest bond issued by the U.S. is 30 years, but I have placed the 50 year estimate to make the maturity a little more rational.

Let's take the $4500 "given" to the clunkeror (or is it clunkeree?). At an assumed interest rate average for the 30 years of 5%, it would cost the U.S. $6,750. Using the same maturity, the $8,000 house "gift" would cost $12,000. Using a more reasonable 50 years at the same (but probably badly understated) 5%, the numbers would become $11,250 and $20,000.

The other raised costs explained by you would have to be added to reach a new total.

Good luck.

Junius W. Peake
Monfort Distinguished Professor Emeritus of Finance
University of Northern Colorado
1618 Lakeside Drive
Greeley CO 80631
970-351-6610
970-391-5890 (Cell)
970-352-3880 (Fax)
jaypeake@gmail.com

Reply
- schu says:
  
  November 7, 2009 at 12:08 am
  
  I wonder how you could prorate a failed oil war at the cost of 3 trillion dollars into to your rates?
  
  Reply
schu says:

October 30, 2009 at 4:59 pm

One of the days we might beat this dead horse to yet another death. This is yet another pork item among so many. Like banks that are to big to fail yet we bail them out and keep the dame management team that caused them to fail. A oil war that failed. The idea that we need B2 bombers to fight terrorists instead of conventional forces that might actually effect them.

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