Monday, July 10, 2017

Cash for Clunkers Was a Complete Failure - Foundation for Economic Education - Working for a free and prosperous world

Cash for Clunkers Was a Complete Failure - Foundation for Economic Education - Working for a free and prosperous world:
Image result for cash for clunkers fail"Keynesian economics is fundamentally misguided because it focuses on how to encourage more spending when the real goal should be to figure out policies that result in more income....
The Impact of Cash for Clunkers
Three economists (from MIT and Tex A&M) have crunched the numbers and discovered that Obama’s Cash-for-Clunkers scheme back in 2009 was a failure even by Keynesian standards.
The abstract of the study tells you everything you need to know.
The 2009 Cash for Clunkers program aimed to stimulate consumer spending in the new automobile industry, which was experiencing disproportionate reductions in demand and employment during the Great Recession. Exploiting program eligibility criteria in a regression discontinuity design, we show nearly 60 percent of the subsidies went to households who would have purchased during the two-month program anyway; the rest accelerated sales by no more than eight months. Moreover, the program’s fuel efficiency restrictions shifted purchases toward vehicles that cost on average $5,000 less. On net, Cash for Clunkers significantly reduced total new vehicle spending over the ten month period.
This is remarkable. 
At the time, the most obvious criticism of the scheme was that it would simply alter the timing of purchases.
And scholars the following year confirmed that the program didn’t have any long-run impact.
But now we find out that there was impact, but it was negative. 
Here’s the most relevant graph from the study. 
It shows actual vehicle spending and estimated spending in the absence of the program.
Bad Policy
For readers who like wonky details, here’s the explanatory text for Figure 7 from the study..."
Read on!

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