I blogged a few days ago about the Edmunds.com analysis of the Cash for Clunkers program, which concluded that the program was an expensive bust, costing the government roughly $24,000 for each extra car sold.
Now a group called NADA is weighing in on the subject. In a press release issued by NADA, they quote their chief economist Paul Taylor as saying the following:
It’s really not that hard to determine a credible cost estimate for the Clunkers program. You subtract projected sales from actual sales for July and August when the Clunkers program was operating, and divide the program’s $3 billion by that number.
When you do that calculation, you come up with a cost to the government per extra car sold of $4,587.
If you are in the mood for a little test of your economic acumen, re-read that quote above and see if you can figure out why it is completely and utterly wrong.
That quote makes no sense economically, of course, because people have control over the timing of when they make their purchases. If you tell people the price of anything is going to go way up in the future (because the Clunkers program is ending), they will make their purchase earlier. This is especially true with automobiles, which are durable goods. It would be less true, of course, with something perishable like a meal at a fast-food restaurant.
With or without a Ph.D. in economics, it should be obvious that the wrong way to judge the success of the Clunkers program is without factoring in shifting of the timing of purchases.
When I see a mistake as egregious as this, I usually suspect it is more likely the result of someone trying to intentionally deceive the public rather than an error of logic. So the first thing I do is try to figure out the incentives of the group that is making the statement.
In this case, I was not surprised to find out that the initials NADA stand for National Automobile Dealers Association. One of their main purposes: to represent auto dealers on Capitol Hill. Their incentive: to say Cash for Clunkers worked so that the program is renewed and more government funds are funneled to auto dealers.
I know it is Paul Taylor’s job to figure out ways to make it seem like Cash for Clunkers was a success, but it is bad for the field of economics when people calling themselves economists make ridiculous, erroneous statements like this one.
If nothing else, getting an economics Ph.D. should teach someone how to complicate and obfuscate the issue so that it isn’t so obvious to outsiders that the argument makes no sense.
(Hat tip: David Cushman)
and 
. You can also watch it on 
With the exception of Hamermesh, there have been few posts on this blog about how economists tackle the problem of temporal shifts in supply and demand. As an avid reader, I would love to see more posts on this subject.
I’m not saying that you’re wrong, or that the Cash for Clunkers thing was necessarily a great idea, but just as devil’s advocate here, isn’t the shifting forward of auto purchases a separate benefit to the economy also envisioned by the program (i.e., a stimulus NOW by shifting forward of future purchased), and therefore shouldn’t it be given some credit when calculating the “cost” of the program? I’m not saying the NADA figure is correct, but I’m equally wary of the Edmunds one, is all I’m saying.
Interestingly enough, “nada” means “nothing” in portuguese
I’m not sure I understand why you’re saying he’s wrong. If the purpose is to stimulate the economy, which is effectively making positive economic happen immediately, isn’t Taylor’s metric effective? Perhaps if you showed how the following two month showed plummeting sales I’d get it, but otherwise what he’s saying makes pretty good sense.
I’m no economist. But it seems to me that you’re only counting the program’s budget against “cars sold that otherwise wouldn’t have been”.
Aren’t there other bits of value in the economic equation?
Perhaps we should wait until the end of the year to determine the effect, and look at the annual actual sales minus annual projected sales.
You would be better able to see the effect.
Seems to me that, yes, Levitt and Edmunds.com are mostly right when they suggest that earlier-than-planned purchases increase the cost of the Cash for Clunkers program.
However, an earlier purchase may have an oppositive effect that Levitt and Edmunds are not considering. An earlier purchase will accelerate obsolescence. In other works, if I buy a car earlier than I had planned, I will also replace it earlier than I had planned. This pumps more money into the system, yes?
Thank you for the revealng article, Steven. When presented in this manner, NADA’s efforts seem apallingly transparent. Since politics is largely a game of confusion and obfuscation, it’s nice to see you note it so clearly in print.