Is there evidence that this US programme has been a failure?
I was asked by a reader recently about my claim that the Cash for Clunkers program was a failure. He said, and I quote, “And your proof is…?” Here is my response:
My conclusion that the Cash for Clunkers program was a failure is based on three factors.
One, it did not have the intended consequences on the environment; for those folks who purchased a marginally more fuel efficient car now, rather than later, the added fuel efficiency was likely more than offset by the pollution generated by destroying the old car, and by the loss in additional fuel efficiency they would have enjoyed had they waited a year or two to replace their current vehicle with an even later, even more fuel efficient model year.
Two, the costs of the program, which are much greater than the $4,500 rebate, far exceed any benefits generated. Abrams and Parsons in the Economists’ Voice estimate that the costs of the program exceeded the benefits by about $2000 per car. A recent study by Edmunds.com put the cost of the program at $24,000 per car once the cars purchases that would have occurred during that period anyway are deducted (http://content.usatoday.com/communities/driveon/post/2009/10/620000657/1). I think the real cost is somewhere in-between, but closer to $24,000 than $2,000. 
The true costs of the program include but are not limited to the additional paperwork and private and public workers needed to administer the program, the interest costs to dealerships of financing the rebate program while awaiting the government checks (some less capitalized dealerships actually went out of business because of the program), the costs of destroying the old vehicles, and the cost of lives lost and injuries sustained in accidents in smaller, less safe but more fuel efficient cars, just to mention a few.
Last, this “injection” into the economy — which, in reality, is the blatant substitution of private consumption choices with public policy, and an affront to our economic freedom — costs the economy untold sums by putting off the inevitable failure of automotive companies that fail to produce cars the population values sufficiently to keep the auto companies in business without being propped up by the government.
Case in point: GM’s plunge of 45% and Chrysler’s fall of 43% in the months following the rebate program; Honda and Toyota also reported double-digit slides, while Kia and Hyundai had double-digit increases.
New car sales fell in September as the predicted post-“cash for clunkers” slump dragged the U.S. market down to its lowest levels in seven months.
I wish it weren’t so, but I’m afraid that good business is not the strong suit of our policymakers.
By Sherry Jarrell
Learning from Dogs 
The principle was good, the implementation was terrible, as Sherry points out.
In France, the cash for clunkers program extends into 2010, but it is much better measured than in the USA(a smaller amount of cash, but only for cars more than 10 year old, bigger money comes only for purchasing ultraefficient cars with 50+ mpg…)
This brings a general question: instead of broad opposition to the principle of government, why don’t US conservatives work for better ideas to implement improved governance? (As they used to, in the fifties.)
The cash for clunker program in France is efficiently implemented by the conservative government.
Overall the conservative governments in France and Germany have been so efficient at managing the economy and the social programs (improving them rather than dismantling them), that they occupy the entire political spectrum. Interestingly “Labor”, in Britain, supposedly socialist, has been much more of an accomplice of corrupt financiers…
PA
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The point about the Labour government in the UK is well made. Blair set out (as a strategy??) to be more right-wing than the Conservative Party and effectively left that Party wondering what to do for years. It appears that this policy of ‘what can we do to stay in power’ rather than ‘what can we do, within our political framework, to make Britain a better place to live’ has run into the buffers and the Conservatives will be the next British governing party whatever Cameron says or does.
One can only hope that principled politics is going to make a come-back, but I’m not holding my breath on that!
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Oh, I am not at all opposed to the principle of government. I just believe that it is not the government’s place to be in business. They cannot be: they write the rules of the game, so it would be unfair and terribly inefficient for them to also play the game! Government has neither the incentive nor the means to “efficiently” manage productive assets. Efficiency means more outputs per unit cost, or lower costs per unit output, and we are talking true and complete economic costs. I fear you may be confusing “efficient” government programs with “less wasteful” government programs because, when compared to the price and quantity of a competitively supplied private good or service, the government outcome is incontrovertibly wasteful.
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Government is a bit like a doctor. When you have a problem and visit the latter, you don’t want him to say; “Not much I can do at the moment – just drink plenty of water, rest and keep warm.”
Nope, you want a MAGIC CURE …. hence the vast over-subscription by doctors of medicines, in particular antibiotics.
When there is a major crisis in the economy, the government is supposed to “do something”, even though – in truth – there is sometimes nothing much that can be done, except stop OVERdoing everything: borrowing, spending, consuming, regulating or all of these at once.
Thre are few politicians around brave enough to say: “We just have to tough it out – there are no magic cures ….” They have to be seen (in their eyes) as “doing something”. Since they often have not had as much experience as running a whelk stall (and because they don’t have Sherry advising them!), their chances of messing up are high …. but this doesn’t worry them, since they count on several things: A) they are seen to be “doing something” and therefore B) They get good headlines and C) by the time this action fails people will have “moved on” and be worrying about something else and D) they of course don’t risk any of their own money.
PS Am I a cynic?
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Not a cynic at all, in my book. A realist!
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