Gherald is pretty dead-set on believing that the “Cash for Clunkers” program was a wasteful, ineffective boondoggle. Leaving aside my baseline argument against that,* I wanted to post in a decent explanation of one of the primary reasons I consider the program’s outcome to be largely effective:

For my money, though, the uncounted benefit of the program has been its effect on the intangible economic force John Maynard Keynes calls “animal spirits.” For weeks, the news and blogosphere have been loaded with images of busy car salespeople explaining that they were selling out of the Ford Focus (when did you think you’d hear that?). Car shoppers appeared on camera with an acquisitive gleam in their eyes that has been in hiding since 2007. And we were treated to the vision of a federal stimulus program that actually seemed to be working. If you wanted to persuade consumers that the economy really is starting to recover, you couldn’t buy more convincing advertising.

Animal spirits, by their nature, aren’t easily measured. But Tuesday’s consumer confidence survey results did register a far greater rebound in optimism than economists expected. (The survey was taken in early to mid-August, when it was becoming clear that Cash for Clunkers would burn through another $2 billion, easy.) Interestingly, consumers say they believe that the economy is still in terrible shape. But their faith in the future has risen to levels not seen since before the recession began. Faith doesn’t easily yield to a cost-benefit analysis, but It’s hard to overstate its economic importance, as Nobel prize-winning economist George Akerlof points out in this MoneyWatch.com video.

Obviously, Cash for Clunkers didn’t account entirely for the jump in consumer confidence, and there’s no guarantee that it won’t fade again, especially if unemployment refuses to fall. And while confidence can’t cause a recovery, a recovery can’t happen without it. So to the extent that the clunkers program gave Americans a reason to believe that things can eventually return to normal and to have some faith that government has a handle on recovery, it was a pretty good investment.

Read more at: http://www.huffingtonpost.com/eric-schurenberg/the-hidden-payoff-from-ca_b_270928.html

Was there waste? Sure. Could we have pumped in money to another sector to boost spending? Sure. But when we ponder what appears to be a decent nudge to improving perceptions about the economy, I think the signs are positive and we probably even got a pretty good bang for our buck.

* – I.e., The program was designed to pump billions of dollars into the economy to boost spending and consumer and business sentiment. It did just that without producing any significant negative externalities. Ergo, CFC’s outcome doesn’t meet the definition of “failure“.