Cash for clunkers: high-cost chase of high-minded goals

Nov. 1, 2013
A furious controversy over stumbling health-care law provides useful context for assessment of an earlier meddling by the US government in economic behavior.

A furious controversy over stumbling health-care law provides useful context for assessment of an earlier meddling by the US government in economic behavior.

Of course the Car Allowance Rebate Scheme of 2009, better known as cash-for-clunkers, was far smaller than the Affordable Care Act, better known as Obamacare.

Like Obamacare, though, the CARS program pursued high-minded goals with incentives to buy products the government deemed superior to what Americans already owned.

With CARS, the ideals were economic stimulus in service to job creation and energy-use abatement in service to mitigation of climate change.

The program offered $3,500-4,500 to motorists trading in vehicles for new models promising better fuel mileage.

Between July 1 and Nov. 1, 2009, the government spent $2.85 billion on the CARS program, which scored 677,842 trade-ins, reports a policy brief by Ted Gayer and Emily Parker of the Brookings Institution.

Gayer and Parker estimate the CARS program boosted sales by 380,000 vehicles. But those are mostly sales that occurred during the program period that otherwise would have happened later.

“The net result was a negligible increase in GDP, shifting roughly $2 billion into the third quarter of 2009 from the subsequent two quarters,” the Brookings analysts say.

And jobs? A “minimal increase,” the authors conclude, about 2,050 additional job-years from June 2009 through May 2010. So the CARS program cost $1.4 million/job created. That’s expensive employment, even by government standards.

CARS proved an expensive way to lower carbon emissions, too: $91-301/ton of carbon dioxide, according to the Brookings authors. The administration estimates the “social cost of carbon” at $38/ton.

In a future recession, Gayer and Parker conclude, “We would not recommend repeating the CARS program.”

So governmental orchestration of purchasing behavior has yielded costly disappointment against lofty goals and evoked a scholarly warning not to try that again.

If the lesson had come sooner, might it have helped prevent the larger fiasco unfolding now? Of course not. Obamacare’s designers would have ignored it.

(This item appeared first on www.ogj.com on Nov. 1, 2013; author’s e-mail: [email protected])