Guess What the Initials NADA Stand For
I blogged a few days ago about the Edmunds.com analysis of the Cash for Clunkers program, which concluded that the program was an expensive bust, costing the government roughly $24,000 for each extra car sold.
Now a group called NADA is weighing in on the subject. In a press release issued by NADA, they quote their chief economist Paul Taylor as saying the following:
It’s really not that hard to determine a credible cost estimate for the Clunkers program. You subtract projected sales from actual sales for July and August when the Clunkers program was operating, and divide the program’s $3 billion by that number.
When you do that calculation, you come up with a cost to the government per extra car sold of $4,587.
If you are in the mood for a little test of your economic acumen, re-read that quote above and see if you can figure out why it is completely and utterly wrong.
That quote makes no sense economically, of course, because people have control over the timing of when they make their purchases. If you tell people the price of anything is going to go way up in the future (because the Clunkers program is ending), they will make their purchase earlier. This is especially true with automobiles, which are durable goods. It would be less true, of course, with something perishable like a meal at a fast-food restaurant.
With or without a Ph.D. in economics, it should be obvious that the wrong way to judge the success of the Clunkers program is without factoring in shifting of the timing of purchases.
When I see a mistake as egregious as this, I usually suspect it is more likely the result of someone trying to intentionally deceive the public rather than an error of logic. So the first thing I do is try to figure out the incentives of the group that is making the statement.
In this case, I was not surprised to find out that the initials NADA stand for National Automobile Dealers Association. One of their main purposes: to represent auto dealers on Capitol Hill. Their incentive: to say Cash for Clunkers worked so that the program is renewed and more government funds are funneled to auto dealers.
I know it is Paul Taylor’s job to figure out ways to make it seem like Cash for Clunkers was a success, but it is bad for the field of economics when people calling themselves economists make ridiculous, erroneous statements like this one.
If nothing else, getting an economics Ph.D. should teach someone how to complicate and obfuscate the issue so that it isn’t so obvious to outsiders that the argument makes no sense.
(Hat tip: David Cushman)