“Cash for Clunkers,” the 2009 Obama administration stimulus program designed to spend $2.85 billion to jumpstart the auto industry, turned out to be a complete disaster — for the auto industry.
In the minds of Obama’s team of advisers and economists, the program made total sense, of course. The plan was to dangle a $4,500 credit to persuade car owners to trade in their older automobiles for new cars with better fuel efficiency. It would stimulate an economy then in the midst of a deep recession. As a bonus, it would mean less oil consumption and cleaner-running cars.
The law of unintended consequences is a brutal thing, though, especially for inexperienced, shortsighted policymakers.
According to the findings of three Texas A&M University economics professors, “Cash for Clunkers” ultimately caused auto industry revenue to shrink by about $3 billion in less than a year
The professors issued the results of their research last month in a National Bureau of Economic Research-sponsored working paper entitled “Cash for Corollas: When Stimulus Reduces Spending.”
“This highlights how — even over a relatively short period of time — a conflicting policy objective can cause a stimulus program to instead have a contractionary net effect on the targeted industry,” the trio of economists wrote, according to The Wall Street Journal’s Market Watch.
“By lowering the relative price of smaller, more fuel-efficient vehicles, the program induced households to purchase vehicles that cost between $4,000 and $6,000 less than the vehicles they otherwise would have purchased.”
For one month, the nearly-$3 billion program increased the sales of tiny, low-profit-margin vehicles. In the next few months, though, all sales faded rapidly.
Overall, the Obama administrative initiative produced exactly no net increase for the number of automobiles Americans purchased.
“In this particular case, environmental objectives undermined and even reversed the stimulus impact of the program,” the professors wrote, according to Market Watch.
In October 2013, researchers from the Brookings Institution came to a similar conclusion, notes The Washington Post.
In a paper called “Cash for Clunkers: An Evaluation of the Car Allowance Rebate System,” the generally centrist think tank’s Ted Gayer and Emily Parker similarly determined that the Obama administration scheme failed to stimulate the economy. To the extent the program improved the air quality and the environment, Gayer and Parker wrote, the cost was exorbitant.