How Much Did Cash-for-Clunkers Boost Auto Sales?
Thursday, September 10, 2009 at 06:07 PM EDT
The busy folks at the Council of Economic Advisers (CEA) released a quartet of studies today, covering the economic impacts of:
I suspect that other bloggers (not to mention the regular media) will have lots to say on the stimulus analyses, so I started my reading with the clunkers piece, which I found quite interesting.
News accounts often describe the program as a success because almost 700,000 people participated in it in just a few weeks. But, as CEA emphasizes in their new study, the fact that someone participated in the program does not necessarily mean that they bought a car because of it. Indeed, CEA estimates that the 690,000 auto sales under the program boosted 2009 auto sales by only 330,000:
What about the other 360,000?
Putting those factors together, CEA estimates the net effect of the program was to lift 2009 auto sales by 330,000, less than half of total participation in the program.
The Cash-for-Clunkers program cost about $2.88 billion, so one way to slice the numbers is to say that each additional auto sale cost taxpayers about $8,700 (=$2.88 billion divided by 330,000).
Was that money well spent? Thatâ€™s a hard question I leave for another day. A careful answer would require analyzing a host of factors including the short-term boost to GDP from the program (which CEA analyzes), the longer-term reduction in GDP from the program (due to lower auto sales over the next few years), the cost of paying off the $2.88 billion borrowed to finance the program, the environmental benefits of getting newer cars on the road, and the wealth loss from euthanizing the clunkers rather than moving them into the used car market.
Note: CEA is careful to note that there are lots of uncertainties around each of its baseline estimates. It also reports a more pessimistic estimate (only 210,000 net new sales in 2009) and a more optimistic one (560,000).
This article originally appeared on Donald Marron.