What you are ignoring is that the objective of cash for clunkers was to eliminate the inventory overhang at the dealers so that firms would resume auto production.
You are evaluating the program on a completely different basis than it was designed to achieve.
It is like saying the doctor set my broken arm so it would heal properly but he failed because he did not make me look like a movie star.
And yet, the excitement over the program was, as you will recall, pretty intense, was it not? It was something tangible for people to hold onto, yes. There may have been some "animal spirits" effect on consumer confidence. Politically, I think the administration got a lot more invested in the whole idea than spencer is admitting.
There is a way to test this going forward, of course. Look at what the politicians say about cash-for-clunkers in the fall campaign.
Will they...1. tout its great success in helping the recovery and give it way more credit than it deserves because it's something tangible the voters can latch onto? (Remember, the program accounted for about two weeks of pre-recession sales and moved those sales forward at most a few months. Its effect has probably now been all but played out and auto sales continue to lag.)
or ...
2. will their silence show that they realize it didn't do much?
Or will they...
3. say that it saved a few thousand workers from a temporary layoff at a cost of $3 billion and a non-trivial amount of destroyed capital?
Politicians love to look like they are saving jobs. And certainly saving jobs is a worthy goal. But what politicians never learn is that the politically easy ways to save jobs are seldom the most efficient. CARS was an easy to explain, easy to understand policy that had obvious political advantages. As I pointed out at the time, this crowded out discussion of better policies. That's what's so frustrating. Remember, I'm not saying that the government should have done nothing. I'm saying (as I said then) that they could have done better. Big difference.
If the leaders from both parties would stop acting like politicians and act more like statesmen we would have fewer things like this to make me frustrated.
What is the source of your estimate that cash for clunkers cost $3 billion?
$3 billion was the size of the outlay. I did not mean, nor did I think that anyone would interpret it as the net social cost. Since $3 billion is in just about any story on CARS in the media, I was operating under the assumption that anyone who had been following the story would know what I mean. Apologies if that was not clear.
But as long as we're on the subject... Surely there is some environmental benefit that would offset that, although I would be uncomfortable trying to quantify it. A lot of productive capital (cars that still had a few years of life left in them) was destroyed. There was an article in Economist's Voice a few weeks ago that claimed that the costs exceeded the benefits to the tune of something like $1.5 billion. A paper appeared shortly after that refuting their result and claiming that the benefits were higher.
Maybe the benefits were higher. But even if it was a "wash" in the aggregate. It represented a $3 billion transfer, largely from the government to people who were on the verge of buying a car in the next few months.
Spencer, I know that you think this is ok. I get that. I get that it reduced inventory. And for the last time, I'm not saying that the program was terrible or that it did some sort of irreparable damage to the economy.
All I'm saying is that it seems like a pretty arbitrary transfer of wealth from the public treasury to be split by people about to buy a car anyway and the auto manufacturers.
This was not the best use of $3 billion of government funds. Not even close.
But it's great politics, and that's what matters. So let's do it again, right? Cash for appliances? I could use a new roof on my house... how about cash for roofs?
Believe me, spencer, I am much closer to you on actually doing the right kind of stimulus to affect employment and poverty than a lot of bloggers further to my right. I just don't think giving people a couple thousand dollars to buy a new car that they would have purchased anyway is the right way to do that.
I would have rather seen the government buy the excess inventory and give the cars to charities, schools, state and local government, etc. Of course people would mock that as a crazy idea (and certainly I wouldn't want to make a habit of that either), but wouldn't it be better than what we got?