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Grading Cash for Clunkers: Give It an E for Effort

Now that Uncle Sam is no longer a back-seat driver for the auto business, this is a good time to pull over and remember one of his signal acts while in the car.
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"Death Row" of traded in SUVs and trucks under the Cash for Clunkers program. (PHOTO: 293.XX.XXX.XX/WIKIMEDIA COMMONS)

"Death Row" of traded in SUVs and trucks under the Cash for Clunkers program. (PHOTO: 293.XX.XXX.XX/WIKIMEDIA COMMONS)

With the U.S. government selling its last 31 million shares in General Motors and the economy revving somewhat, this is a good time to revisit the Cash for Clunkers program. (It’s also worth remembering that this was another time when a much heralded government website melted down—albeit briefly—when it went live.)

Two new examinations of the program are out. The Brookings Institution released a study of the program at the end of last month (see their lovely summary graphic below), while some academics at the University of Michigan just published an environmental and economic analysis of the program in the journal Ecological Economics.

Since the Consumer Assistance to Recycle and Save legislation created the Consumer Assistance to Recycle and Save program (hey, both of those spell out CARS!) all the way back in 2009, here’s quick drive down memory lane: In the depths of the Great Recession, policymakers latched onto an idea to both stimulate the economy and throw a bone to the desperately ailing auto industry by offering individual Americans rebates for trading in their existing driveable cars for new ones. To broaden the political constituency for what was essentially a giveaway, the new cars had to get better mileage than the old ones; the size of the rebate ($3,500 or $4,500) was tied to how much better the mileage was. Drivers wolfed down the $3 billion set aside for the program in about a month; about 700,000 cars went to the crusher.

The program has been a magnet for examination during its short run and since, with Pacific Standardresponsible fora fair bitof the scribbling. To sum up what’s been written so far, the balance of study and reporting boils down to “nice try.” The new studies tend to concur.

At Brookings, Ted Gayer and Emily Parker write, “In the event of a future economic recession, we would not recommend repeating the CARS program.” While Cash for Clunkers did give a short-lived goose to the economy and did reduce carbon emissions a little, the say, the cost and the hoopla exceeded the bang.

Our evaluation of the evidence suggests that the $2.85 billion in vouchers provided by the program had a small and short-lived impact on gross domestic product, essentially shifting roughly a few billion dollars forward from the subsequent two quarters following the program.

That might have been more helpful had the recession not been so catastrophic. In the aftermath, policymakers in their more reflective moments agreed. As Austan Goolsbee, an economic adviser to President Obama at the time, said in 2011: “If you look at Cash for Clunkers or the first home buyer tax credit, they were geared to trying to shift [recovery] from 2010 into 2009. Given it’s taken this long [to recover], I don’t think you would do that short-run stuff.”

Environmentally, results were also less than stellar, according to Gayer and Parker (although it could be worse):

The cost per ton of carbon dioxide reduced due to the program was higher than what would be achieved through a more cost-effective policy such as a carbon tax or cap-and-trade, but was comparable (or indeed lower) than what is achieved through some of the less cost-effective environmental policies, such as the tax subsidy for electric vehicles.

Looking at Cash for Clunkers from a slightly different angle, Michigan’s Shoshannah M. Lenski, Gregory Keoleian, and Michael R. Moore argue that whatever its benefits, the rebates were almost certainly too large and the mileage requirements too small for the return.

Most “scrappage programs,” they found, have offered between $500 and $1,000. In this case, they don’t have data on how low the feds could have gone, “but we suspect that $2,500 is on the high end. ... A lower rebate, or an auction mechanism for setting the rebate value, could very well have achieved higher participation (more vehicles scrapped) for the same government-funded cost, resulting in greater ‘bang for the buck’ in terms of both economic stimulus and environmental benefits.”

There was economic value from the reduction in pollution, but they peg that benefit at between $43 million and $170 million. “These environmental benefits seem relatively small, given the combined $15 billion spent on the program by participating consumers and the government.” They find it notable that 80 percent of the economic value they estimate—and this is actually a very active source of academic investigation—comes from the reduction in greenhouse gases emitted, and not from various other pollutants like particulate matter and sulfur oxides that have a more immediate deleterious impact on health.

In their own review last year of Cash for Clunkers’ economic and environmental effects, Shanjun Li, Joshua Linn, and Elisheba Spiller used the control group of Canada to assess if the program was firing on all cylinders. Writing in the Journal of Environmental Economics and Management, they come up with slightly different figures for when auto sales would have occurred—they estimate 45 percent of money went to buy cars consumers were going to buy anyway—and the value of pollution avoided (and they also note that their estimates don’t include “the costs of destroying the still-useful capital of the traded-in vehicles and the environmental costs of constructing the new vehicles”). But in the end, Li and his colleagues come to the same conclusions, suggesting that while it might not be fair to fully evaluate a program that has multiple objectives based on how it achieves just one or the other, that’s still an “inherent difficulty” of using one tool for all tasks.

In short, nice try.