Claim: Cash-For-Clunkers MASSIVELY Distorted GDP

[daenku32]

So your point is that no one should buy a new car? We can all just keep buying used cars forever?

 

[Wildy]

And go ahead and tell me that their car wouldn't have been worth 4500 dollars, but really think about what that means.

The $4500 is the price of the car after factoring in mileage and depreciation and possibly demand?

 

[Just thinking]

The increase in spending occurred when it was needed to help get the economy back on track. Most of the decrease in spending because people are paying off car loans will occur after the economy is back to normal. Even that will be tempered by lower spending on gasoline, since the cars bought are more efficient than the cars they replace.

Not so ... car loans have a steady rate of payback, month-to-month. The amount being paid for the load will be the same now as in whenever the loan expires. Plus, you are assuming that the recovery will be such that things will be much better in a few years ... many economists are predicting at least that long before things start to become healthy and unemployment is more under control.

Also, some purchasers didn't need a car loan. We bought a car under the program and paid cash. The CARS program gave us an incentive to replace an inefficient SUV now rather than driving it into the ground.

Isn't that in direct opposition as to what Al Gore said was the most energy and pollution efficient means of auto replacement? It's much wiser (I'm paraphrasing) to keep an older vehicle in good condition than to go off and buy a new one just because it has somewhat better mileage. Also, money spent on a car is less money elsewhere, regardless of how it's financed.

It's still quite a bit less money being spent on cars in 3Q than 2 years ago.
And, the money they spent on the car didn't disappear, it went to dealers and car companies and their employees, who in turn will spend about 95% of it on other things.

Not the interest ... that went to the banks. (Car loans can be quite high.) And with unemployment numbers rising, I doubt you'll be getting 100% assurance on every loan. And I agree, like you said, it's still much less than 2 years ago, and we know how things went from there.

 

[Kestrel]

Not so ... car loans have a steady rate of payback, month-to-month. The amount being paid for the load will be the same now as in whenever the loan expires. Plus, you are assuming that the recovery will be such that things will be much better in a few years ... many economists are predicting at least that long before things start to become healthy and unemployment is more under control.

Assuming the economic crisis only continues for six months or a year, the vast majority of the car payments will occur when the economy has recovered.

Some economists have been saying that we are screwed for years to come. That might come true if we follow the pundits that say the way out of the crisis is for consumers, businesses and government to all minimize spending.

 

[Kestrel]

You overestimate the savings on gasoline per year. I could buy a used ford f-350 with a 454 big block and get like 10 miles a gallon, and still save money over a decade than if you buy even a modestly priced used car with exceptional gas mileage.

Assuming a rather typical 15,000 miles per year, that truck will use 1,500 gallons of fuel each year. With gas at $2.50 a gallon, that fuel would cost of $3,750.

The same number of miles in a 30 MPG car would use 500 gallons at a cost of $1,250. Each year the small car would save you $2,500 in fuel. Over a period of 10 years, the savings would be $25,000. You can buy a rather nice new car for that price.

If gas prices go up, the payback comes even faster.

Some folks do indeed need a huge work truck. But using one just to haul yourself, a sack lunch and an inflated ego to a desk job is rather silly.

 

[kevinquinnyo]

Assuming a rather typical 15,000 miles per year, that truck will use 1,500 gallons of fuel each year. With gas at $2.50 a gallon, that fuel would cost of $3,750.

The same number of miles in a 30 MPG car would use 500 gallons at a cost of $1,250. Each year the small car would save you $2,500 in fuel. Over a period of 10 years, the savings would be $25,000. You can buy a rather nice new car for that price.

If gas prices go up, the payback comes even faster.

Some folks do indeed need a huge work truck. But using one just to haul yourself, a sack lunch and an inflated ego to a desk job is rather silly.

I could provide some math that shows that buying a used car is more economical over a new one, or I could show you math that shows buying a new car and selling it after 2.5 or 3 years at x interest rate is more economical.

But it doesn't matter. My point, is that you cannot say that gas savings in aggregate make up for the hidden costs of cash for clunkers, when, if it were true that people wanted to make this economical gas savings decision, then they would have SOLD their used car, and bought a new one.

They were artificially incentivized to do something they wouldn't have done otherwise, and on top of that, we paid administrative costs, and destroyed working engines to have this done. It doesn't make sense no matter how hard you try to make the numbers work.

 

[kevinquinnyo]

So your point is that no one should buy a new car? We can all just keep buying used cars forever?

No. Not at all. My point is that we shouldn't pay the government to destroy working engines by pouring sand into the gas tank. It's destruction of wealth, and that's NEVER productive.

 

[Wildy]

I could provide some math that shows that buying a used car is more economical over a new one, or I could show you math that shows buying a new car and selling it after 2.5 or 3 years at x interest rate is more economical.

Will you though?

 

[kevinquinnyo]

Will you though?

Do a google search?

Are you buying a car? Do they still make the Hilux over there in Australia? I love that thing.

 

[daenku32]

No. Not at all. My point is that we shouldn't pay the government to destroy working engines by pouring sand into the gas tank. It's destruction of wealth, and that's NEVER productive.

All I can say is that my own non-qualifying clunker (3 mpg over the limit) is quite capable of wealth destruction all on its own. Hopefully they have another program in '10 so that I can finally replace it with a car that will last another 10 years without being a bottomless money pit.

 

[psychictv]

Also, money spent on a car is less money elsewhere, regardless of how it's financed.

And? This plan was designed to direct spending to the auto industry and it did just that.

Not the interest ... that went to the banks.

So? Inventory was still moved. The plan worked.

if it were true that people wanted to make this economical gas savings decision, then they would have SOLD their used car, and bought a new one.

Um... sold their car in a market where nobody was buying cars? Sold it for less than $4500? I don't think you are grasping even the very basics of how this thing worked.

 

[kevinquinnyo]

All I can say is that my own non-qualifying clunker (3 mpg over the limit) is quite capable of wealth destruction all on its own. Hopefully they have another program in '10 so that I can finally replace it with a car that will last another 10 years without being a bottomless money pit.

Well, mine didn't qualify either. I probably would have done it too. I mean 4500 dollars off a new car is a great deal.

But I don't like the idea of my old truck getting euthanized either.

The problem I have with the program is that it's destructive, and doesn't actually help the economy. It just destroys used cars. That 4500 dollars didn't just come out of thin air.

 

[kevinquinnyo]

Um... sold their car in a market where nobody was buying cars? Sold it for less than $4500? I don't think you are grasping even the very basics of how this thing worked.

Did you meanto say more than 4500?

Hmm... Let me put it this way. One of the arguments FOR the Cash For Clunkers plan, to which my comment refers, was that the gasoline savings exceed the costs of the plan for the taxpayers.

My argument against this, aside from the fact that it has not been verified, and is certainly questionable, is the fact that the argument itself is false, a priori.

The reason is that, if it were an economic improvement for individuals to buy those more fuel efficient cars, and trade in their used cars, then they WOULD HAVE DONE IT.

Where do you think the 4500 comes from? Don't forget that it was just taken from everyone's paycheck. We could have kept that money. Not to mention, again, all of the administrative fees associated with the program. And yet again, all the used cars that would still exist in the market, producing more wealth for those who would be driving them right now.

 

[psychictv]

Did you meanto say more than 4500?

No, the cars traded in under CFC would have been almost universally worth far less than $4500. So your argument that they would have just sold them anyway makes no sense. They were, as you say, "artificially incentivized to do something they wouldn't have done otherwise". That was the whole point of the program.

Hmm... Let me put it this way. One of the arguments FOR the Cash For Clunkers plan, to which my comment refers, was that the gasoline savings exceed the costs of the plan for the taxpayers.

Nobody is making that argument. It's not how the program was designed, it's not how the program was sold to the public, and it's not even what the poster you were responding to was arguing.

My argument against this, aside from the fact that it has not been verified, and is certainly questionable, is the fact that the argument itself is false, a priori.

Well great! You knocked down that strawman handily!

The reason is that, if it were an economic improvement for individuals to buy those more fuel efficient cars, and trade in their used cars, then they WOULD HAVE DONE IT.

No, there may not be an individual economic incentive to sell your clunker for $500. That's why people needed to be, as you put it, "artificially incentivized". The point was to achieve an overall economic benefit, not an individual one. And it succeeded, as evidenced by the "MASSIVELY distorted GDP".

 

[kevinquinnyo]

No, the cars traded in under CFC would have been almost universally worth far less than $4500. So your argument that they would have just sold them anyway makes no sense. They were, as you say, "artificially incentivized to do something they wouldn't have done otherwise". That was the whole point of the program.

Of course. Why would anyone participate if they weren't getting at least trade-in or market value?

You and I have a communication problem.

Nobody is making that argument. It's not how the program was designed, it's not how the program was sold to the public, and it's not even what the poster you were responding to was arguing.

Actually, deanku was making that exact argument.

Well great! You knocked down that strawman handily!

It's not a strawman. It was a response to a claim here in the forums.

No, there may not be an individual economic incentive to sell your clunker for $500. That's why people needed to be, as you put it, "artificially incentivized". The point was to achieve an overall economic benefit, not an individual one. And it succeeded, as evidenced by the "MASSIVELY distorted GDP".

Really, really think about what you just said. Think about it hard.

People are willing to buy my clunker for $500. We will accept this number for the example. Let's assume that is about the highest price anyone is willing to pay.

If the market says that the value of my truck is $500, then why would it be a good idea to artificially change that price to a much higher amount?

Do you think this money is just magically created?

you
...The point was to achieve an overall economic benefit, not an individual one.

You're trying to make a distinction between "individuals" and "overall economy." Individuals and their economic decisions are decisions in aggregate. This IS the overall economy.

 

[kevinquinnyo]

Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.

Psychictv,

If you were to accept the $24,000 dollar tax figure, would you still think c4c was a great idea that "succeeded" in doing anything?

 

[Puppycow]

Edmunds.com, the premier resource for online automotive information, has determined that Cash for Clunkers cost taxpayers $24,000 per vehicle sold.

Psychictv,

If you were to accept the $24,000 dollar tax figure, would you still think c4c was a great idea that "succeeded" in doing anything?

Well critics can't have it both ways can they?
Both of these can't be true at the same time:
1) C4C "MASSIVELY distorted GDP"
2) C4C didn't succeed in doing anything

The $24,000 dollar figure assumes that about 80% of people who took advantage of C4C would have bought cars anyway. I'm dubious that that assumption is correct.

 

[kevinquinnyo]

Well critics can't have it both ways can they?
Both of these can't be true at the same time:
1) C4C "MASSIVELY distorted GDP"
2) C4C didn't succeed in doing anything

The $24,000 dollar figure assumes that about 80% of people who took advantage of C4C would have bought cars anyway. I'm dubious that that assumption is correct.

I never said it didn't do anything. It definitely did something. I also didn't write that article.


So you think 80% is dubious. Fair enough. But would agree that the program likely cost somewhere above 4500 dollars and 24,000 per car?

 

[Puppycow]

I never said it didn't do anything. It definitely did something. I also didn't write that article.


So you think 80% is dubious. Fair enough. But would agree that the program likely cost somewhere above 4500 dollars and 24,000 per car?

Yes. There's no question that some percentage of people would have bought cars anyway. 50% is probably a reasonable low-end estimate for the same figure. So somewhere between those two figures.

If you look at the following graph you can visually see the spike.
http://online.wsj.com/mdc/public/page/2_3022-autosales.html
Then there's a small dip in the following month and then it goes back to about where it was before C4C. The graph is for all vehicle sales, not just those eligible for C4C.

 

[Francesca R]

The problem I have with the program is that it's destructive

I think you should get over your phoney moral outrage, since it is inconsistent with prior comments you have made.

It tends to make the "government is baaaad" mantra of yours look like a contrived sham. Which is a pity since there are things that governments do which are ba[aaa]d, but I suggest you ain't helping to convince anybody of that