Thursday, October 29, 2009

Cash for Clunkers cost $24,000 per car

Edmunds.com has analyzed the car sales numbers during the Cash for Clunkers program and estimated that the marginal cost was $24,000 of our tax dollars for each new car sold:
A total of 690,000 new vehicles were sold under the Cash for Clunkers program last summer, but only 125,000 of those were vehicles that would not have been sold anyway, according to an analysis released Wednesday by the automotive Web site Edmunds.com. ...

The Cash for Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.

The average rebate was $4,000. But the overwhelming majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com. That means the government ended up spending about $24,000 each for those 125,000 additional vehicle sales.
The average rebate value mentioned above seems like bad rounding. It appears the average rebate was closer to $4,348. Here's the math:

$3 billion overall cost ÷ 690,000 cars sold = $4,348 per car total cost

(690,000 / 125,000) × $4,348 = $24,000 per car marginal cost

In an example of regulatory capture (government regulators protecting the industry they are supposed to regulate), the Department of Transportation is defending Cash for Clunkers (i.e. "Car Allowance Rebate System") by saying that it was good for the auto industry:
"It is unfortunate that Edmunds.com has had nothing but negative things to say about a wildly successful program that sold nearly 250,000 cars in its first four days alone," said Bill Adams, spokesman for the Department of Transportation. "There can be no doubt that CARS drummed up more business for car dealers at a time when they needed help the most."
Note that what's good for car dealers is not necessarily what's good for the overall economy, just as what's good for Realtors is not necessarily what's good for the overall economy. Like the first-time home buyer tax credit, Cash for Clunkers is nothing more than wasteful corporate welfare.

The White House has come out with a weak, short-term-oriented defense of the program. Notice, however, that for the most part the left-wing economics bloggers who are usually quick to defend the White House against faulty economic reasoning (e.g. Paul Krugman, Mark Thoma, Calculated Risk) are remaining silent on this one. In fact, left-leaning economist Jeffrey Sachs is out with his own criticism of Cash for Clunkers' supposed climate benefits. Sachs actually makes the mistake of measuring total cost, rather than marginal cost, so the program is actually 5.5 times more wasteful than the numbers he complains about.

Just like the first-time home buyer tax credit, Cash for Clunkers is a handout of our tax money to the special interests who lobby Congress.

33 comments:

  1. The rebate topic is more complicated than you present. If the auto industry had more layoffs, including the supplier industry ("systemic risk?") it could have cost more in lost income-tax revenue, unemployment expenditures and "trickle down" to mortgage delinquencies.

    You make a lot of good points in your blawg. But, there's a level of partisanism (banality) that takes spoils it.

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  2. The thing is that the point of cash-for-clunkers was to help the auto industry: it boosted auto sales by more than 20%. You can criticize the program if you want, but you shouldn't criticize it for doing exactly what it was intended to do.

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  3. Why should the atuo induststry need help? They should have to balance their own books, even if this means declaring bankruptcy, breasking the union, slashing bloated pensions, and lowering salries - all so that they can spend the money on an improved product. I am so sick of subsicies. I understand helping true victims (Katrina, for example). This is pathetic.

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  4. "Notice, however, that for the most part the left-wing economics bloggers who are usually quick to defend the White House against faulty economic reasoning (e.g. Paul Krugman, Mark Thoma, Calculated Risk)"

    The only thing I noticed is that you haven't really read Krugman's articles on Obama's economic policies, these are far from ringing endorsements.

    http://www.nytimes.com/2009/03/23/opinion/23krugman.html

    http://www.nytimes.com/2009/02/13/opinion/13krugman.html

    http://www.nytimes.com/2009/03/09/opinion/09krugman.html

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  5. Anonymous said...
    "you shouldn't criticize it for doing exactly what it was intended to do."

    I'm criticizing it because it's a waste of taxpayer money. If politicians intended to waste taxpayer money, that doesn't mean it should avoid criticism.


    Anonymous said...
    "If the auto industry had more layoffs, including the supplier industry ("systemic risk?") it could have cost more in lost income-tax revenue..."

    Perhaps in the short run, but not in the long run. Keeping inefficient companies limping along is harmful in the long run because it's a waste of resources. An important part of the free market is allowing inefficient resources to be freed up so they can be redeployed for more efficient use. In the long run, Americans aren't going to stop buying cars. If GM and Chrysler were to go out of business, we've got a far more efficient auto industry in the Mississippi River Valley waiting to satisfy consumer demand.

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  6. I agree, James.

    Moreover, the inefficiencies explained in this article do not capture what is perhaps the greatest economic loss of all -- the destruction of half a million perfectly usable automobiles pursuant to the terms of the program.

    For people who claim to be "progressive," the C4C folks sure look like Luddites to me.

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  7. I love all these "woulda, shoulda, coulda" estimates.

    Lets guess how many people woulda done this without a stimulus.

    90% of our tax dollars go to either bombing the hell out of someone or studying and developing how to bomb the hell out of someone. Why complain about the wellfare of our own citizens.

    The same conservative types that complain about their tax dollars going to help a fellow american, are the ones that wave the flag and say we are fighting for freedom overseas. If you dont care about americans, do you TRUELY care about a foreigners freedom?

    sorry for my rant, I just get tired of the complaining that the stimulus helped poor people that woulda done it without a stimulus anyway. The amount of money spend on the "cash for clunkers" was about as much as a single smart bomb that exploded on some far away country I couldnt care less about.

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  8. "90% of our tax dollars go to either bombing the hell out of someone or studying and developing how to bomb the hell out of someone. Why complain about the wellfare of our own citizens."

    Ah yes, I love the war argument. You can justify anything congress does with our money, because at some point in history, we spent money on war. "One evil justifies another," or more like you just can't justify this crap at all and have to stoop to default "but the war" defense.

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  9. Perhaps in the short run, but not in the long run. Keeping inefficient companies limping along is harmful in the long run because it's a waste of resources.

    Yep. Exactly. Glad to see you were paying attention when the global economy nearly shit the bed. In the *short* run it was critical that we prop up the economy. Pretty much every reputable economist on the planet was in agreement that we were staring into the abyss, and that doing stupid things like letting the Big Three poof out of existence at the exact same time we were trying to pass a insufficiently large stimulus would be counterproductive.

    Pretty amusing that now with the benefit of hindsight, we get to hear all this free-market fundamentalism when these are the very shibboleths that brought us to this point. Strong regulation is absolutely necessary to *prevent* corporate entities from growing large enough to bring down the global economic system.

    You'd think that the events of the last year would drive home the obvious point that allowing quasi-governmental agencies to metastasize is a *bad* thing. But of course, it's much easier to let the magical hand of the market do the heavy lifting, so we're guaranteed to be in the exact same position in another generation.

    Let the markets work; Jebus will take care of the rest!!!

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  10. Ah yes, I love the war argument. You can justify anything Congress does with our money, because at some point in history, we spent money on war.

    I think at some point, it would be instructive for you to get hold of a copy of the federal budget, and take a good long look at the expenditures on defense, then take a look at what every other country on the planet spends.

    Then have a nice sit down and ruminate on why we're going broke. Defence dollars are just like the dollars that we spend on everything else, in that they don't come out of some enchanted, bottomless sack.

    The US maintains 11 aircraft carriers in active service, the Brits have 2, Italy 2, India 1, Spain 1, Brazil 1, France and Russia 1, and Thailand 1.

    Blind support for the Military/Welfare state has consequences, since before the days of that wild-eyed bomb-throwing leftist radical Dwight Eisenhower.

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  11. So, yeah, "at some point in our history, we spent money on war".

    Sorry, forgot to give you props for your keen insight.

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  12. "Ah yes, I love the war argument. You can justify anything congress does with our money, because at some point in history, we spent money on war."
    -kevin

    Well, oboe already took you to task but I'll still take my turn at it as well. The argument isn't to justify wasteful spending, its to point out the hypocrisy of those who rail against one form of government spending (domestic social/economic development programs) but turn a blind eye to the vastly greater amount of money spent on military programs. I'm certainly against wasteful domestic spending, and not in some generic way but down to specific programs such as the housing tax credit. And I'm certainly supportive of military strength, but I still point out a great deal of waste and idiocy (see War, Iraq or Massive Nuclear Weapons Supply, Maintenance Of). That's "the war argument" that you dismiss. Look at the budget and see where the money is going.

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  13. Oboe,

    I think Italy overspends on aircraft carriers. On a proportional basis (we have 305 mil, they have 60 mil), they would have 10.2 to defend their proportional number of people, close to our number.

    Since you can't float portions of an aircraft carrier, we'll say that they would need 11 for the same number of people... the same amount as the US.

    I'd say our government loves aircraft carriers about as much as Italy does.

    Chuck

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  14. Kahner,

    The primary responsibility of government is to protect its people from outside forces. I think I learned that in social studies in the 3rd grade.

    People never claim they were overdefended when under attack.

    Besides, our military does a great deal of humanitarian work around the world. I know, because my in-laws and wife were a beneficiary of that circa 1975 in Phnom Penh.

    I find it perfectly reasonable that we spend more money on military than anything else. Which, by the way, we don't. We spend much more on entitlements. In fact, we spend almost 3 times as much on Social Security and Medicare as we do on the entire department of Defense:

    http://en.wikipedia.org/wiki/File:Fy2007spendingbycategory.png

    Soon, we will be spending as much or more on the interest on the debt as we do on our entire military.

    Chuck Ponzi

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  15. Anon 10:22 said . . .

    "90% of our tax dollars go to either bombing the hell out of someone or studying and developing how to bomb the hell out of someone. Why complain about the wellfare of our own citizens.
    * * *
    sorry for my rant, I just get tired of the complaining that the stimulus helped poor people that woulda done it without a stimulus anyway."
    ----------------------------------
    I agree that the U.S. spend way too much on maintaining a misguided overseas military empire. However, Kevin is correct in that two wrongs do not make a right. Wasteful military spending
    does not make wasteful domestic spending O.K. They are both wrong.

    Also, you assume that C4C and the porkulus package actually helped poor people. Nothing could be further from the truth. What is helpful about destroying the affordable used cars that poor people would otherwise be able to buy without debt, or be able to canablize for parts? Even with the C4C cash, a poor person still needs to take on debt to buy a new car.

    Government programs designed to help poor people purchase assets (C4C, HUD, FHA, $8k tax credit, etc.) are actually ways to subsidize the debt that the poor people must take on to purchase those assets, thereby inflating asset prices and reducing poor peoples' ability to live a comfortable life without debt. Essentially, these governemnt programs help rich bankers make poor people debt peons for life.

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  16. chuck said "The primary responsibility of government is to protect its people from outside forces. I think I learned that in social studies in the 3rd grade."

    Well done, Chuck. Lets base our discussion on what you learned in third grade. Clearly the starting point for any intelligent discussion of federal policies. Is death by a foreign bomb worse than death by untreated cancer or your city flooding?

    "Besides, our military does a great deal of humanitarian work around the world. I know, because my in-laws and wife were a beneficiary of that circa 1975 in Phnom Penh."

    So? How is this at all relevant? First of all, I'm not against military spending, I merely said waste spent in the defense budget is rarely mentioned by those who fancy themselves fiscal conservatives. Second, if you're happy to have the military do humanitarian work abroad why would you be against humanitarian work at home done through non-military channels?

    "I find it perfectly reasonable that we spend more money on military than anything else. Which, by the way, we don't. We spend much more on entitlements. In fact, we spend almost 3 times as much on Social Security and Medicare as we do on the entire department of Defense:"

    I never said and do not imply we spend more on the military than on all other things. But I do say we waste more money there. You may not support medicare or medicade, but I do and think its money well spent.

    As far as the interest on debt, I don't see how that has any relevance to this debate. Everyone would agree that decreasing our debt and interest payments would be great, the question is how to do it.

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  17. Chuck said:
    "I think Italy overspends on aircraft carriers. On a proportional basis (we have 305 mil, they have 60 mil), they would have 10.2 to defend their proportional number of people, close to our number."

    Thats deep strategic analysis there, Chuck. Clearly the number of aircraft carriers needed is directly proportional to population. Did you learn that in third grade as well, or just make it up? I'll guess #2.

    Its also nice of you to ignore all the high population countries he listed whose population:air craft carrier don't fit into your clever analysis such as brazil, russia or india. Your intellectual honesty is astounding.

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  18. >Keeping inefficient companies limping along is harmful
    >in the long run because it's a waste of resources.

    I agree with the qualifier "in the long run." I disagree that the past 12 months have been anything like the "long run."

    >An important part of the free market is allowing
    >inefficient resources to be freed up so they can be redeployed
    >for more efficient use.

    It's well established that we as a society reject pure, Darwinian market philosophy. If we consistently applied the principle you describe above, we'd abandon building codes, zoning laws, food & drug quality laws, banking regulations, the SEC, and social creation of corporate entities (fictional, yet legal "persons" created by the fiat of state legislatures).

    All those things violate the premise that winners result from losers.

    For example, zoning laws greatly reduce your personal responsibility to purchase sufficient property to protect yourself from your neighbor's perfect right to dispose of their property in any way they wish. Zoning laws moderate the "free market" outcome which would occur if you gambled on too little property, and your neighbor decided to open a late-night biker bar -- causing your property to become cheaper for another willing buyer (a deaf person?).

    The same thing with banking regulation and the SEC, eliminating a huge amount of "caveat emptor," improving market outcomes -- which ultimately comes at the expense of market participants who would benefit if you chose to cut corners when choosing a bank or company to invest in.

    I can understand those who may feel various market interventions go too far. But, dismissing interventions as violating a sacred principle of "free markets" is deceptive because even those who use such convenient arguments don't seriously propose getting rid of all the market interventions they personally benefit from.

    PS: I was "anonymous" #1.

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  19. There where so many restrictions with this clunker deal i didn't even bother to take advantage seems like a big fraud deal to me.

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  20. We spend almost 3 times as much on Social Security and Medicare as we do on the entire department of Defense

    Wait. You do know where Social Security & Medicare are funded via payroll contributions, right?

    By your logic, whichever financial organization you make your 401k contributions must be hemorrhaging money, since you can only count expenditures, not revenues.

    And why stop at SS/Medicare? Why not lump the freeloading recipients of Federal pensions in there as well? That's like another 6% of GDP..

    As an aside: DoD, GWOT, and DHS are all separate "slices" in the linked pie-chart, so you need to mentally adjust accordingly.

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  21. Im the guy who started the "war argument"

    My point wasnt to say two wrongs make a right. Just pointing out how hypocritical the everyone is.

    Even in this thread someone posts
    "Besides, our military does a great deal of humanitarian work around the world."

    AS IF IM ATTACKING THE MILITARY!!!

    My point chuck ponzi, people like you who trumpet "military humanitarian" are the same people bitching and moaning that your money helps the poor right in your backyard.

    Do you see it now? You still complaining about helping your neighbor or are you a flag waving "humanitarian" only for people over in the middle east?

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  22. It's a shame they don't teach macroeconomics in the third grade too. What is really shameful is the number of microeconomic arguments presented (i.e. $23,000 per clunker purchase, $43,000 per first-timer purchase, etc.) in response to macroeconomic issues (i.e. liquidity trap, thermal curtain failure, etc.)

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  23. war arguement said...
    "Im the guy who started the "war argument"

    My point wasnt to say two wrongs make a right. Just pointing out how hypocritical the everyone is."


    Please show me where on this blog I have ever expressed an affinity for military spending.

    I have stated that destroying cars as a method of stimulating the economy is an example of the broken window fallacy. The broken window fallacy comes from Frederic Bastiat's classic essay titled "That Which Is Seen, and That Which Is Not Seen". In that essay, right after the broken window fallacy comes the disbanding of troops fallacy, in which Bastiat disputes the idea that military spending is good for the economy.

    For the record, I am not opposed to government spending. But, I think it matters what the government spends its money on. Investment spending is beneficial. Spending money on roads, schools, scientific & medical research, communications satellites, the Internet, etc., is good for the economy. However, spending money to destroy perfectly good cars or to transfer existing homes from one person to another is wasteful spending. Spending money for a bunch of guys to do push-ups or kill foreigners is generally not beneficial to the economy either.

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  24. Tangelo Mozilo said...
    "I agree that the U.S. spend way too much on maintaining a misguided overseas military empire. However, Kevin is correct in that two wrongs do not make a right. Wasteful military spending does not make wasteful domestic spending O.K. They are both wrong."

    Hear, hear!

    I think I agree with War Argument Guy. Initially it was difficult to tell whether he was using war spending as an excuse to defend Cash for Clunkers, or if he was just pointing out the hypocrisy of the Republican Party. It appears to be the latter. It's amazing how after almost a decade of massive spending and massive deficits under President Bush, the Republicans are now pretending to be a small government party, which they are not.

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  25. "Please show me where on this blog I have ever expressed an affinity for military spending."

    I wasnt finger pointing to you. Just a general popshot at the conservative republican "tea party" attitudes.

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  26. It's amazing how after almost a decade of massive spending and massive deficits under President Bush, the Republicans are now pretending to be a small government party, which they are not.

    I think your attacks on the GOP are grossly unfair. The Republicans have *always* pretended to be the "small government party".

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  27. I didn't defend military spending. Surely we can and probably should cut down on that. But you know there's little defense for these wasteful domestic programs when you hear the "but war and military" excuses. When you're using an unrelated wasteful program to defend garbage like C4C, it shows there is no better argument to defend it than "one evil justifies another".

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  28. Kevin said " But you know there's little defense for these wasteful domestic programs when you hear the "but war and military" excuses. When you're using an unrelated wasteful program to defend garbage like C4C, it shows there is no better argument to defend it than "one evil justifies another"."

    UGH! Dude, no one is using one to defend the other. That fact that has been explicitly stated by myself and others. We are simply pointing out that many "small government conservatives" have hypocritically trashed all kinds of domestic spending programs while ignoring wasteful spending programs in the military and elsewhere. The faux outrage of the rightwing was notably absent during the GW Bush years of exploding deficits. And this is not a blanket statement about posters here. It applies to pretty much the entire republican political establishment though, and to the fringe teabag base. For them republican policies=good, democratic=bad no matter what.

    So Kevin, please read and respond to the actual arguments being made, not strawmen you create out of thin air.

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  29. To my mind that Cash for Clunkers programm is complete rubbish, created in continuation of other people-robbing projects.

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  30. "For the record, I am not opposed to government spending. But, I think it matters what the government spends its money on. Investment spending is beneficial."

    So what do you propose be done about such issues as the "liquidity trap" and "thermal curtain failure" if you'd limit government spending to investment in tangible assets?

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  31. Tuskenrayder said...
    It's a shame they don't teach macroeconomics in the third grade too. ... So what do you propose be done about such issues as the "liquidity trap" and "thermal curtain failure" if you'd limit government spending to investment in tangible assets?

    A liquidity trap can be handled without wasteful spending. In fact, it can be handled much more efficiently if money is spent on sensible investment, i.e. infrastructure, education, the National Science Foundation, the National Institutes of Health, etc.

    I challenge the idea that "thermal curtain failure" is an economic concept. I have never come across it before. A Google search for "thermal curtain failure" turns up a Wikipedia article on the movie "SpaceCamp" as the first search result. A Google search for "thermal curtain failure" and "macroeconomics" only turns up one search result: this blog post.

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  32. i was wondering about his continued reference to thermal curtain failure but hadn't looked it up yet. looks like a little rhetorical trap for someone to try to respond to as if they knew what it was. it actually would have been funny if it had worked. as for the liquidity trap, I agree with James. Smart, targeted government spending is exactly what a Keynesian economist would recommend when you've reached a liquidity trap. Monetary policy has reached its limit so you apply fiscal policy stimulus.

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  33. Looking for a website which would allow me to find the value of my Kia 2010. The GM doesn't give values for 2010 models. Is there another tool online which I could use?

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