What’s the measure of success for Cash for Clunkers?

Philip Greenspun, the MIT prof and computer sciences guru, asks an interesting question today. If the U.S. didn’t spend billions on Cash for Clunkers, what could it have spent its money on?

37 percent of Americans don’t have broadband Internet at home (source). If we spent the Cash for Clunkers money on Let’s Try to Catch up with Korea (95 percent of households with broadband, typically much faster than ours (one source)) a lot of Americans might not have needed to make so many trips in their cars because (1) they could work from home, (2) they could shop from home, (3) they could get information from home, (4) they could find out, from home, that some place they were planning to go was in fact closed.

Cash for Clunkers has been hailed as either an environmental program (generally discredited by most environmentalists) or an economic boost, the effects of which are far from clear.

Some analysts have suggested people who bought cars under the program, probably would’ve bought them anyway soon. In Annie Baxter’s story, Scott Lambert, of the Minnesota Automobile Dealers Association, disagrees:

“Most of the dealers think these are just conservative people who had hung onto their cars for a long time and took advantage of this, and probably would not have come in if not for this program,” said Lambert.

The problem is we don’t know and never will know. If the unemployment rate drops over the next few months, does that mean it worked? If it goes up again, does that mean it doesn’t? If Minnesota’s sales tax collections go up, perhaps that’s attributable to new cars, but what if it stays flat or goes down? We know that consumers have paid down their debt in recent months and that’s now a bad thing. But now they’ve got car loans, a big sales tax bill, and higher auto insurance payments. Does the injection of cash into the economy now offset their inability to spend more later? Will the number of auto jobs saved/created, offset the number that are on a pace to be eliminated?

In the unemployment figures released Friday, factory employment in the U.S. dropped by 52,000 but some auto workers didn’t get laid off for summer retooling. Considering that some union contracts call for them to get paid — fairly generously — during layoffs, there may not be an economic bounce from that fact unless jobs were going to be eliminated permanently. And that’s still the plan for struggling U.S. auto industry. How do we factor in the big boost in advertising cash to radio and TV stations and newspapers?

What exactly will be the measurement for success of the program?

“There’s no real way to calculate it without making a bunch of assumptions,” Lee Schipper, a researcher at the University of California, Berkeley, and at Stanford said in a New York Times’ attempt to measure the program.

… Seven years from now, when cars have to average 39 miles a gallon, what will we think of a government program that enticed hundreds of thousands of consumers to buy vehicles that got 30 miles a gallon (and that in 2016 will be middle-aged)? Had the program not existed, some of those buyers might have waited until 2012, when the new mileage rules begin to be phased in.

But in the end, “cash for clunkers” may help undo a previous government program: for years, small businesses got a tax break for buying S.U.V.’s, but only if they were the very largest — at least 6,000 pounds.

  • Bob Moffitt

    How about this measure: the 7,500+ Minnesotans who bought a new car under the program.

  • Bob Collins

    Minus the number of people who would have bought a new car anyway over X number of months…

    But we’re talking about a public option here so there MUST be a measurable public benefit to compare the cost to.

    It’s not enough that the neighbors haves a spiffy new Prius.

    We need to see a formula that shows a benefit that’s at least $4,501 dollars. I haven’t seen that formula, yet.

  • Bob Moffitt

    If the CARS program is seen as a political and PR success for the President and Congress, that is a benefit as well. If most Americans see the program as a sucess, than it is a success, regardless of the economics.

    Unlike most of the stimulus programs, it was immediate, relatively easy (for the consumer) to understand, and tangible (that spiffy new Prius in my neighbor’s driveway).

    In short, people get it. And they like it.

    The public is simply ignoring critics and are buying new cars. While the media (including MPR) has looked at C4C from a number of different angles and perspectives (good for them), Joe and Jane Citizen seem to have made up their minds and are buying more fuel-efficient (and outside of the Prius, largely made in America) vehicles.

    So, still don’t like the program? Don’t participate.

    Don’t like the way your tax dollars are being spent? There is an election next November. You can let your vote do the talking.

  • Bob Collins

    That pesky media: Asking questions like “is the investment of public money an investment that makes economic sense?”

    Rewind 7 years and replace Clunkers for Cash with “Iraq War” and see if the “it doesn’t matter, the public likes it” still makes a compelling argument.

    As for the public with the new Priuses, well, aren’t they the people who bought the new SUVs, pickups, and Hummers in the first place? Why are we listening to them and not the people who bought the little tiny cars (without a government handout) when they were muscling it up?

  • JackU

    I think I made this comment somewhere else but I’ll make it again since it seems relevant.

    The CARS program does something that everyone was screaming for back in January when the stimulus bill was being debated. “Put some money in the hands of consumers. We are a consumer driven economy.” So from politics and PR standpoint that was already brought up it looks good.

    Also while the automobile manufacturers got money the dealers did not. And the ugly fact is it was the dealers that were stuck with the inventory. Yes its true that some of the people buying under the CARS program might have waited. Some might even have waited until the new higher mileage cars came on line. But you still have all of that inventory on the dealer lots. If we need to remove some cars from the “population” better to remove the Excursion and keep the Focus.

  • Bob Collins

    //The CARS program does something that everyone was screaming for back in January when the stimulus bill was being debated. “Put some money in the hands of consumers. We are a consumer driven economy.” So from politics and PR standpoint that was already brought up it looks good.

    But that’s my point? It “looks” good. Is it good? What is the measure of success by which the addition investment of $2 billion makes sense?

    //But you still have all of that inventory on the dealer lots.

    And why is that the responsibility of the taxpayer?

    I’m reminded of Al Franken’s comments during the stimulus debate. He, for one, saw no reason to “bail out” automakers, as I recall. Here, we’re not only bailing out automakers, we’re bailing out consumers who made poor choices when buying their cars last time.

    I wonder how many of the consumers who have been bailed out objected to any significant effort to bail out consumers who lost their homes?

    There’s been very little action on that front — the very problem that caused the economic woes in the first place.

    We obviously got a first-hand lesson in how the housing economy ripples through the economy as a whole. Do we have that same formula for the auto industry and if so, can someone please provide it?

  • Tyler

    In my opinion, this is welfare for the wealthy. I don’t know anyone who has ever bought a new car.

  • Bob Moffitt

    While the Iraq War compairson was a little over-the-top (The CARS program isn’t going to kill anyone, including capitalism and free markets), I get your point, Bob C.

    Others have pointed out that the program seems, on one level, to reward those who made bad decisions while excluding those (like myself) who bought smaller fuel-sipping vehicles on their own dime. As Tyler notes, it doesn’t do much to help the working poor, who pay the highest % of their incomes in energy and transportation costs of any Americans.

    It’s not a perfect plan, and I would have done it differently. That said, I still think its working, and has its merits. Government, like life, isn’t always fair.

    When the extent of the Big 3 automakers’ financial peril became clear, some lawmakers (and candidates) suggested that “creative destruction” be allowed, and that a new, leaner and better US auto industry would rise form the ashes of Detroit.

    I think that’s bull.

    I don’t want the industry to collapse just so we prove a point. I believe that it is in the best interest of the taxpayer to help the auto industry — and not just because we are all now stockholders in two of the Big 3.

    Bob C., we agree that little has been done to fix the core problems that lead to current financial crisis. That must change, and I hope the leadership in Washington is up to the challenge.

    If they are not, there’s this election next November…

  • Bob Collins

    //While the Iraq War compairson was a little over-the-top (The CARS program isn’t going to kill anyone, including capitalism and free markets), I get your point, Bob C.

    It has nothing to do with whether something does or does not kill. It has to do with asking questions before committing public policing, having a goal, and evaluating our status at various times on the way to the goal.

    We don’t know if it’s a good or bad plan because there isn’t a defined goal and a measure of success behind it. $1 billion was initially committed. How as that figure determined? Then another $2 billion was committed. How was THAT figure determined?

    It’s not that it’s not a perfect plan. It’s that it isn’t a plan at all.

    It’s just throwing money at something hoping for a result..

    Don’t we need public policy that’s a little more intelligent than that?

    As Dave Durenberger said — and I know I’ve invoked it here countless times; it’s THAT insightful a quote — “any road will get you there if you don’t know where you’re going.”

  • Bob Moffitt

    That’s often the way government operates, Bob. To quote another statesman, Otto von Bismarck: “Laws are like sausages, it is better not to see them being made.”

    CARS was passed hastily, but in the midst of a financial crisis, so is that a surprise? It was based on a German law, so there is a model (and at least one yardstick to measure success or failure). I imagine the $1 billion and $2 billion sounded like nice, round numbers.

    Clearly, the program has had a result. That result will not satisfy everyone, especially those who believe that the costs may outweigh the benefits. Someday, no doubt with the help of pesky journalists and bloggers, we may know the answers — or not.

    There is a time to bail out water as fast as you can, and a time to design a better boat that doesn’t leak. I think we gotta get this leaky ship of state into safe harbor before we design our next craft. Hopefully, we will learn from the experience, and from our mistakes.

  • Bob Collins

    //There is a time to bail out water as fast as you can, and a time to design a better boat that doesn’t leak.

    How about a time to think creatively and in recognition of a newer economy? Since we’re talking about health care these days, consider the fact the C4C program, a program that had no measurable standard for success, dwarfs the annual spending to find a cure for Alzheimer’s, a disease that afflicts someone every 70 seconds..

    Why don’t we commit to programs that DO have a meaningful measure of success? Because we don’t WANT to because then someone might say we failed. So now we don’t even try.

    We just keep things open-ended. Maybe after we see the “results,” we’ll come up with the standards for measuring so we can say, “Yep, it was a success all right.”

    I mean, geez, this is the sort of thing we talk about doing every year around election time.

    How are we ever going to accomplish this sort of innovative thinking (and results) if we can so easily be bought off by Congress?

    As long as Michigan and Ohio have so many auto plants — and electoral votes — we best not get too idealistic in our vision.

  • Bob Moffitt

    There is an old saying that “we get the government we deserve.”

    Increasingly, I think that is true. Keep the faith, brother!

  • Bob Moffitt

    Some followup on C4C.

    Story from yesterday:

    “General Motors Co. is boosting production at several auto plants in North American, including one in Ohio, as it adds 60,000 cars this year. GM also will bring roughly 1,350 United Auto Workers and Canadian Auto Workers members back to work.”

    And closer to home: (via MPR’s Annie Baxter)

    “Sales of the Ranger pick-up truck grew 65 percent last month compared to July of last year, partly due to the popular cash for clunkers program.

    Ronda Danielson, president of the United Auto Workers Local 879, said in September, workers will work 50-hour weeks, and that schedule could last a while. ”

    “It’s possibly going into the fall, even into December, with a couple Saturdays coming in there,” Danielson said. “We’re really excited.”

  • Bob Collins

    Pretty much what I predicted, Bob. We’ll see the results of the program, the we’ll say that’s the standard we had to measure whether it’s a success.

    Good to hear people are going back to work.

    I still don’t understand, though, what happens when the dealer lots are filled again.

    If people bought cars because of the government handout, and the government handout ends, isn’t it logical to assume that people won’t buy cars again.

    So aren’t the automakers going back to work to build cars to sit on a dealer’s lot again?

    How does that create a long-term benefit for the people who just went back to work? Aren’t they looking at another layoff once those lots are filled?

  • Bob Moffitt

    Consumer confidence — and spending — can be a tricky thing that doesn’t always act in a “logical” manner. It is more emotion-driven than fact-driven.

    Yes, the government program will end on Labor Day, but if the car companies are smart enough to learn from this, they will offer some significant discounts of their own — a risk they might not have taken if the feds had created buying momentum with this program.

    I, for one, bought a car in August without any encouragement or handout from the government. So not all of us are motivated strictly by C4C program.

    Maybe it will work, long term, maybe it won’t. However, it was clear the staus quo before C4C was not helping anyone. We will need more time to see if this summer marked a turning point in our economy. Jobs, as you well know, will be a lagging indicator.