Chart of the Day: Cash for Clunkers

posted at 12:55 pm on June 4, 2010 by Ed Morrissey

How well do Keynesian economic policies actually work to stimulate the economy?  That question has been debated for decades, and the results have been mixed enough to support either side of the debate, thanks to the complex workings of macroeconomics.  Most people believed that Keynesianism had died a well-deserved death during the 1970s, when it obviously failed, but made a comeback in the desperate straits of 2008-10.

However, this time one Keynesian policy put into place offered a way to study the results without other complicating factors.  The Obama administration and the Democratic leadership in Congress offered the Cash for Clunkers program as a Keynesian stimulus for auto sales, arguing that they could stimulate the industry as a whole through the expense of several billion dollars in public funds.  Did it work?  Coyote Blog parsed the retail sales data from the Census Bureau and discovered that it had no impact in the overall growth rate of sales after a collapse in 2008:

The data show that the government stimulus did increase sales — but that the following month, sales dropped in proportion to the spike.  The three-week incentive program simply moved sales from the future into the present, and did nothing to increase organic demand even in a relatively short run.  Sales had already begun to rebound in the spring, even with the Cash for Clunkers proposal moving through Congress.

What this chart doesn’t show is the poor timing of the program.  C4C hit as dealers would have been discounting vehicles anyway, in order to make room for the new models that arrive in September.  Instead of hitting the point where demand might flag, the C4C program overlaid an incentive-rich period in the sales cycle for auto dealers.  That killed demand when the new models did arrive, which likely forced dealers and manufacturers into pushing hard on incentives that may not have been needed otherwise.

Some may say that the intervention didn’t hurt sales, either, so the effort was a wash.  However, the government spent several billion dollars on incentivizing people who would have bought anyway, money we don’t have, thanks to our massive budget deficits.  Instead, we borrowed the money and will have to repay it — as well as pay the interest on the bonds over the next several years.  We got nothing for a whole lot of something, which is why we abandoned Keynesianism in the 1970s as well.

Keep this in mind when the government can no longer extend what’s left of the housing bubble.


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Instant gratification in all things.

The promise of Utopia.

BobMbx on June 4, 2010 at 12:59 PM

We got nothing for a whole lot of something, which is why we abandoned Keynesianism in the 1970s as well.

We abandoned Keynesianism in the 70′s because it had no answers for stagflation.

Caper29 on June 4, 2010 at 1:00 PM

Success!

lorien1973 on June 4, 2010 at 1:00 PM

How well do Keynesian economic policies actually work to stimulate the economy? That question has been debated for decades, and the results have been mixed enough to support either side of the debate, thanks to the complex workings of macroeconomics.

First of all, the term you’re stumbling around for is “Communist economic policies.”

And secondly, any possible debate regarding whether Communism “stimulates” any economy was over a hundred years ago. Everything since then has been propaganda.

logis on June 4, 2010 at 1:01 PM

Dystopian Reality achieved!

Leonidas Hoplite on June 4, 2010 at 1:02 PM

Being an Electronics Engineer, that sharp transient spike in the graph is the cause of unwanted external stimuli and is dealt with by proper filtering and/or design practices.

Electrongod on June 4, 2010 at 1:02 PM

It worked perfectly for them.

Cash for clunkers, census hirings, tax credit for new home buyers…

Offer an incentive, report the spike in the headlines, Idiot in Chief takes credit.

Artifical spike over – bury the statistics, The Golfer keeps mum.

Rinse and repeat.

reaganaut on June 4, 2010 at 1:03 PM

Mike Shedlock posted about this a couple of days ago. Depite all the glowing news about GM and Chrysler’s sales being up, car sales are roughly at the level they were back in 1983.

Mike Honcho on June 4, 2010 at 1:05 PM

This Obama recovery is just awesome!

WashJeff on June 4, 2010 at 1:05 PM

We got nothing for a whole lot of something,

…This pretty much sums up the whole Obama administration.

Baxter Greene on June 4, 2010 at 1:06 PM

We abandoned Keynesianism in the 70’s because it had no answers for caused stagflation.

Caper29 on June 4, 2010 at 1:00 PM

FIFY.

wearyman on June 4, 2010 at 1:07 PM

It would be interesting to see a graph of the housing market before, during and after the rebates that are expiring.
I’m sure it would look very similar.

AZ_Mike on June 4, 2010 at 1:07 PM

Cars saved or created!

BacaDog on June 4, 2010 at 1:10 PM

Yeah, but if the Gov didn’t do Cash 4 Clunkers, there would have been no job for the guy who created this graph.

Auto jobs “saved”, graph making jobs created. Double score!

myrenovations on June 4, 2010 at 1:10 PM

Clearly they need to raise taxes and spending to fix this.

Inanemergencydial on June 4, 2010 at 1:10 PM

Government intervention in this manner does not work.

SC.Charlie on June 4, 2010 at 1:15 PM

Instead, we borrowed the money and will have to repay it — as well as pay the interest on the bonds over the next several years.

Which means future car sales will be lower as people will be paying higher taxes, and higher interest rates. Money that could have been used to buy cars (and other goods & services) will now instead go to government & lenders. It’s almost as if this regime had no understanding of economics. Oh, wait.

rbj on June 4, 2010 at 1:20 PM

AnnInCA hardest hit.

mwdiver on June 4, 2010 at 1:23 PM

Ha! You aren’t so smart…see all they have do to is have a “Cash for Clunkers” every month, it would never spike down. Each month would be an upward spike…after 3 months (on quarter) they could extrapolate the data and project a growth for the next 6 years.
Then with those projections, project the added tax, then create a program that uses that tax money.
We would have; projected increase in car sales, projected increase in employment, new gov. programs, added projected tax revenues…the added increases would then create a better environment (better cars, better mileage), less fuel use.
Isn’t that how it works?

right2bright on June 4, 2010 at 1:23 PM

Clearly they need to raise taxes and spending to fix this.

Inanemergencydial on June 4, 2010 at 1:10 PM

Since Obama took office I’m surprised no one has suggested taxing retirement plans as income. I made interest in two of the last six quarters. Clearly the purpose of Obama care was to ensure that people like me wouldn’t live long enough to retire.

Tommy_G on June 4, 2010 at 1:27 PM

The stunt was to appease the eco weenies. Obama tossed in the caveate regarding fuel mileage improvement.
The other agenda item was Obama caused havoc. Obama stole the 2 car makers from their shareholders. with credibility problems, this was designed to unload inventory. You can’t unload inventory when you cancel dealers and have their inventory out there. This was not about the economy or other claims Obama made.

seven on June 4, 2010 at 1:27 PM

It blame the chart maker guys.

Obviously not unionized.

BigWyo on June 4, 2010 at 1:28 PM

Lie upon lie. Climb aboard the hell bound train. Or is that bankrupt bound country.
I guess obowma isn’t JFK and FDR rolled into one. Rather he is a not-so-very useful idiot with a rapidly declining shelf-life.

NoKoolAide on June 4, 2010 at 1:31 PM

OK, need to post a link to the clip of Judge Reinhold in (can’t remember the movie – Ruthless People?)

“Can’t afford it? f—ing finance it!”

That’s the mentality of these people.

reaganaut on June 4, 2010 at 1:31 PM

This chart also describes what happened to Lucent Technologies just prior to the “Dot.Com bust” except Lucent did this phenomena of sucking future sales into the present creating a “sales vacuum” for a much longer period.

J_Crater on June 4, 2010 at 1:38 PM

Artifical spike over – bury the statistics, The Golfer keeps mum.
reaganaut on June 4, 2010 at 1:03 PM

Artifical spike over – bury the statistics blame Bush, then make fun of idiot Bush

redzap on June 4, 2010 at 1:39 PM

Facts, just facts.

BTW our chocolate ration has been increased from 30 grams to 25 grams.

jukin on June 4, 2010 at 1:44 PM

The problem is that Keynes said government should borrow in lean times and pay it back in boom times. All we did for the last sixty years is borrow. If we weren’t already ten trillion in the hole, we could have put real money behind programs designed to prop up the economy instead of the chump change that was spent on C4C.

As for the timing, that was all Øbama. The man has never even run a lemonade stand, so how would he know anything about the seasonality of business?

Kafir on June 4, 2010 at 1:46 PM

Government intervention in this almost any manner does not work.

SC.Charlie on June 4, 2010 at 1:15 PM

FIFY also.

The War Planner on June 4, 2010 at 1:47 PM

Since the expiration of the homebuyer assistance program on April 30, new mortgage apps fell 40% in May. Same phenomenon. Bigger costs to you and me.

GnuBreed on June 4, 2010 at 1:47 PM

A Dem will look at this chart and still see that it has useful political applications.

You get an artificial jump one month (with a good day of headlines), the predictable drop the next (and one day of bad headlines), followed by the jump back to normal levels (and another good day of headlines).

So it doesn’t matter if it’s economically stupid and inefficient. It still helps the Dems.

sammypants on June 4, 2010 at 2:02 PM

There’s another side effect, or unintended consequence, of the C4C program. This was brought to light by my neighbor, who’s a contractor.

C4C artificially depleted the supply of used trucks, which are usually inexpensive. These vehicles were attractive to my neighbor who needed a “new” truck, but given the weak job market, he could not afford a brand new truck even with C4C.

So this left him in the awful spot of paying too much for a used truck. He looked everywhere he could for a good used truck, but they all got melted down due to C4C.

Way to stick it to the working man Barry!

BVM on June 4, 2010 at 2:05 PM

key the Unicorns…..

SDarchitect on June 4, 2010 at 2:21 PM

BVM on June 4, 2010 at 2:05 PM

Indeed. Not only did the program have negligible positive effect, all the while costing taxpayers billions, the destruction of good vehicles in the name of ….something or other…. is beyond imbecilic. That to me, is the real record of C4C.

rslancer14 on June 4, 2010 at 2:40 PM

‘Bama gonna help me with my mortagage and my car payments. Gonna free up some extra money so I can get the big flat screen. ‘Course that ‘freed up’ money came from not making mortgage and car payments. See how that works?

GarandFan on June 4, 2010 at 2:42 PM

Oh Oh Oh I know, C4C helped out those who were already in debt by going deeper into debt. But llok at the bright side of C4C, it helped get all those Obama/Biden stickers off the road.

Brokenspirit on June 4, 2010 at 2:49 PM

Obviously, what the graph doesn’t show is how much worse off we are as a society. As usual, wealth was redistributed from the productive to the less productive – with the gov’t taking their cut, of course.

Wait, tell me again, how is this different from extortion?

Pablo Snooze on June 4, 2010 at 3:02 PM

In light of the BP oil disaster, at best one can say that many gas guzzlers were permanently retired to the automobile graveyard. Therefore, imo, the program was not a complete loss.

~ Halli Casser-Jayne
http://www.thecjpoliticalreport.com

The CJ Political Report on June 4, 2010 at 3:16 PM

All C4C did was to remove perfectly decent cars from the market that could have been sold privately or by used lots. We’ve been looking for an inexpensive but reliable car for our new driver who needs to commute to NJ. No luck.

Mommynator on June 4, 2010 at 3:27 PM

Keynesian economic policies have NEVER worked!

These policies are only typically applied by economic illiterates as a tool for political showmanship.

Does ANYONE wonder what the ‘cash for kitchen appliances’ programs are doing right now?

The market briefly looked at the rise in durable goods purchases, and then sold off as the next pop in this government created sales bubble is about to pop!

I wonder if Obama is going to admit it is HIS FAILED policies that have caused these sales bubbles?

Freddy on June 4, 2010 at 3:40 PM

BVM on June 4, 2010 at 2:05 PM

I, too, am wondering why this is the least-mentioned criticism. It’s not just used vehicles, it’s vehicles for parts or repair as well – making it harder to maintain existing vehicles.

Stupid broken-windows fallacy. Bastiat figured it out hundreds of years ago, every economist agrees on it, but wave a grant or a government job in front of them and their brains fly out the window.

The REAL reason why programs like this will never die is because they have nothing to do with economics – it’s 100% politics, the politics of pork. It doesn’t even matter that they aren’t really giving you anything, it just has to LOOK like they’re giving you something, and some people will ALWAYS vote for that.

Merovign on June 4, 2010 at 4:15 PM

As someone said, at least the program got a lot of cars with Obama stickers off the road.

Dhuka on June 4, 2010 at 5:02 PM

Got rid of a lot of perfectly good cars that people could have used, though.

Alana on June 4, 2010 at 5:21 PM

For every job created or supported with public money, a job was destroyed or diminished in the private sector.

foucaultsvac on June 4, 2010 at 6:33 PM

That’s what you get when you have lawyers running the country. We need businessmen and women, not chowderhead organizers and politcal assassins. Everyday seems to bring us another distastful revelation and the is no light at the end of the tunnel. More importantly, we need more people in this country to wake and realize what these fools are doing to the nation.

LarryG on June 4, 2010 at 7:10 PM

Can we get cash for the Obama clunker?

grapeknutz on June 4, 2010 at 7:36 PM

Hey, the upward spike shows the C4C worked, it just wasn’t in place long enough for the full effect to take place. Just think what that graph would look like if the program had 30 billion dollars and could have lasted for a year? We’d all be driving new cars!

/snark

Hey, Pablo Snooze, is your handle a take-off on the band “Pablo Cruise”?

Snidely Whiplash on June 4, 2010 at 8:48 PM

“Congratulations, you won!”

Hot Air is one of five sites I visit SEVERAL times a day.

I will QUIT coming here if you sell advertising like that.

HarneyPeak on June 5, 2010 at 11:04 AM