Tuesday, September 15, 2009

Does “Cash for Clunkers” Tell Us Anything?

Donald Marron d iscusses the Council of Economic Advisors (CEA) analysis, and it's not pretty.

Long story short: out of the 690,000 sales as part of the “Cash for Clunkers” program, only 330,000 are estimated to be due to the program. The remaining 360,000 represent sales that would have happened anyway, or sales pulled from into the program by either delayed or accelerated purchases.

At 690,000 cars “stimulated”, the average cost of the program is about $4,200 per car. However, if 360,000 were going to be purchased anyway, the stimulus was wasted on those transactions. (ignoring the timing value of the purchases to the automakers). With only 330,000 “real” Clunker transactions, the average cost per transaction increases to about $8,700.

This is essentially a waste factor of $4,500 per transaction, or about 110%.

Keep that in mind when listening to official estimates of healthcare savings costs under some government program.