The Verdict on Cash for Clunkers: a Clunker

From a new working paper by Atif Mian and Amir Sufi:

A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. 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; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.

Levitt was skeptical two years ago. A recently departed Obama official, meanwhile, disputes the finding.

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  1. Brett says:

    “A recently departed Obama official, meanwhile, disputes the finding.”

    Shocker…

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  2. Dan says:

    Isn’t saving just ‘delayed spending’ according to economists? Why was this a good idea again? The only reason I can think of is increasing liquidity for troubled car manufacturers during that time frame…

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  3. Joe D says:

    Putting money in people’s hands is only stimulative to the extent that they *must* spend that money (see “paradox of thrift”). CfC only stimulated those who needed a new car. Tax cuts for the wealthy are not stimulative. Unemployment benefits are.

    Direct government demand (infrastructure maintenance, e.g.) is also stimulative, of course.

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  4. Q says:

    so it didn’t provide economic stimulus,? however, it did get inefficient cars off the road and replace them with more fuel efficient cars. anyway to measure the economic impact of that?

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  5. Jacob says:

    Ron Paul said this was dumb. Ron Paul is always correct. End communication.

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  6. Joe says:

    What was the total impact on average car gas mileage and fuel efficiency? Can it be said that those people now have more buying power because they spend less on gasoline, thus raising their standard of living?

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  7. Drill-Baby-Drill Drill Team says:

    A spending program should try to achieve multiple goals: improve the economy and improve transportation, but how about improving quality of life and encourage exercise in a sedate, couch-bound population.

    I believe transportation requires multiple modalities to get us to our destination. We cannot discount walking. Even SUV riders have to leave their vehicles and walk the last 100 yds and walk throughout building in an 8 hour workday. But walking takes time and is not viable for long distances.

    Most of our daily errands are within a few miles of home. A bicycle multiplies the human effort by several fold. We should be able to accomplish trips up to 7 miles on our own pedal power (Less than 30 minutes transit).

    For middle distances around city arteries from 10-40 miles, we should plan our homes and cities around mass transit. Buses, street cars, trains, and even high speed rail. Of course this infrastructure takes decades and billions of dollars. But it should not stop us from relocating our homes close to city centers, hubs and major arteries of transit.

    Our society currently uses the car exlcusively for distances from 100 yds to 100 miles. We should be able to use the proper tool for the proper distances. Note that combining exercise and time for conversation and our own private thoughts may be integrated into our commutes.

    Lost Opportunity Cost: 3 billion dollars helped the purchase of 360,000 cars. But as an alternative, the government could have purchased 30 million bicycles and given them FREE to active adults for use in short errands, exercise and commutes. They could tie the gift, to a promise to either use the bike daily or give it to someone who will. Even if only 3% used them daily, we would have 1 million people not using their cars, not contributing to parking problems and traffic jams, diminished smog and noise, getting regular cardiovascular exercise, combating global warming, connecting them with their local neighborhoods and improving quality of life without the expense of a single barrel of oil.

    Call it Government Bicycle Give Away. That may be a billion dollar bonanza that will accomplish many goals: improve quality of life, make us healthier, and last for decades. It’s Win-Win. Or you could watch your new 2008 Mini SUV become a rusty, oil leaking, clunker of tommorrow.

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  8. Andrew says:

    Two points:

    1. An important objective of Cash for Clunkers was to replace less fuel efficient vehicles with more eco-friendly vehicles. As opposed to the Bush era tax credits for small businesses to buy gas guzzling SUVs.

    2. Moving up purchases could have positive effects on the economy. This does not seem to be examined by the paper.

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