American Elephants

The Clunker Stimulus Didn’t Stimulate. Are You Surprised? by The Elephant's Child
September 20, 2010, 7:20 pm
Filed under: Capitalism, Domestic Policy, Economy, Liberalism | Tags: , ,

It is becoming clear that the Obama stimulus programs were a flop.  But would the economy have been worse without them?

Economists Atif Midan of the University of California, Berkeley and Amir Sufi of the University of Chicago have studied the $2.85 billion program that gave consumers a subsidy to turn in their old cars to be destroyed and buy new ones.

We called it “Cash for Clunkers.”  They concluded that the program “had no long run effect on auto purchases.”  It boosted sales during its two-month run last summer by about 360,000 cars and then quickly hurt sales by about the same amount.  In effect, it stole sales from the future, and was a complete wash in only seven months.

The goal of White House economists was to stimulate “aggregate demand” in the regular economy.  It wasn’t sold as a discount for cars that people were already planning to buy. Christina Romer, the former chairman of the Council of Economic Advisers wrote that ‘cash for clunkers was “very nearly the best possible countercyclical  fiscal policy in an economy suffering from temporarily low aggregate demand.”  It was meant to encourage economic activity like more consumer spending and job creation.

Economists Mian and Sufi caution that their findings that there was no noticeable difference in economic outcomes in the 957 metropolitan areas they studied, does not mean that all forms of fiscal stimulus fail to boost long-run economic output.  There was a blip in the cities where the auto industry concentrated, but that can’t be disentangled from the bailout money.

The article doesn’t indicate whether the study included the long-term effects of removing so many cars from the used car market and the parts department.  Supposedly it raised the cost of used cars across the board, but I have not seen that confirmed.

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