Let’s be honest. Without counting the sarcastic there are two kinds of people calling Cash for Clunkers a success. The first kind is the person saying the Cash for Clunkers stimulus program is successful. These people are stupid. They don’t understand the most basic economic principles and mechanisms a stimulus program is trying to affect.
Reality: The fact that people are taking the money government is giving away doesn’t mean stimulus is successful. Nor does the fact that car sales went up temporarily and car factories are adding shifts mean stimulus is successful. Stimulus is only successful after we see it reverberate throughout the economy.
So we can’t know yet. We have to wait and see if paying people to buy cars will cause further economic activity. It’s not guaranteed. The sales may have been mostly future sales simply reschedules sooner. The consumer credit and cash used may simply be moved from other areas. For example: A person may buy the car now and wait on the new kitchen – rather than the other way round without the stimulus – which would mean equal economic activity – no effective stimulus.
The second type of person is the partisan who is saying simply: “Cash for Clunkers is a success.” And they’re right. Cash for Clunkers made news – good news – which made the President look good. Any program that doesn’t blow up in the president’s face and discredit his ideology, according to his partisans, is a successful program – even if it silently kills half of us.
So since we won’t know for a while how well this “stimulus” program works, let’s see what’s going on now.
First we have to realize the auto companies were already in recover. They were truly in the weeds around the first of the year, but our billions of stimulus helped them through that.
Second – for the past two months and 3 billion borrowed tax dollars – anyone even thinking about getting a new car in the next 30 months would have to be stupid not to go ahead and buy it during the program. But now the program is over. Logically, all of these sales that were “moved up” will be absent from sales in the next year or so. Of course, we can’t know this for sure yet, but it goes along with the next thing we know is happening.
Third – we are now seeing those pesky market forces giving us trouble – supply and demand. Cash for Clunkers was so “successful” it cleared out all the high mpg cars. So, unless you’re buying a big fancy truck, you’d be stupid to buy a new car in the next six months. Why? Because the prices have gone up. They’ll stay up until stock is replenished. (which might be tough since the dealerships haven’t gotten their Cash yet) And – well – you missed the program so you’ll best serve your budget by waiting as long as you can – maybe until the next juicy Obama program.
In summary, for Cash for Clunkers to genuinely be successful, it would have had to have caused people to purchase cars they otherwise wouldn’t have and/or the money spent on cars will have to cause multiple amounts of economic activity. In other words, it would have to cause people to spend money they otherwise would have saved and/or cause the auto industry to put more than $3 billion into other areas of the economy.
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Raging Kitty