Even those without degrees in the “dismal science” of economics could figure out that the Cash for Clunkers program, part of the 2009 economic “stimulus” program foisted upon the nation, was a dumb idea. The federal taxpayer — or, more accurately put, future federal taxpayers — handed over up to $4,500 to anyone who could drag in an old car to a dealership so they could buy a new vehicle.
This scheme would “stimulate” the economy, help prop up the auto industry the taxpayers just bailed out, and also help clean up the environment by taking inefficient and smoky vehicles off the road. As those subscribe to free-market economics, as opposed to the Keynesian nonsense we’ve seen fail the past two years, predicted: Shuffling government money around in the economy does not promote economic growth. In fact, it can retard real, long-term private-sector growth by distorting markets and discouraging the flow of capital.
But don’t take my word for it. Economists Atif Mian of Berkeley University and Amir Sufi of the University of Chicago Booth School of Business have issued a new paper that explains why the Cash for Clunkers program didn’t work. From the executive summary:
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.
When we’ve got a $14 trillion debt, what’s the big deal about throwing $3 billion down this rat hole, eh?
(HT: Veronique de Rugy at The Corner)