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Federal Clunker Program Cost Lots of Cash

Wednesday August 27th, 2014   •   Posted by K. Lloyd Billingsley at 7:07am PDT   •  

clunkers_200“The 2009 federal Cash for Clunkers program is often hailed as a success because it jump-started new-vehicle sales,” notes Kathleen Pender at, “but a new study says it actually cost car dealers $3 billion in lost revenue because its fuel-efficiency requirement caused people to buy cheaper cars than they would have otherwise.”

The new study is “Cash for Corollas” from economists at Texas A&M University. The goals of the federal program were to stimulate the economy by accelerating car sales and boosting fuel economy. But study author Mark Hoekstra said the pursuit of both goals caused the program to fail.

The Car Allowance Rebate System, official name of Cash for Clunkers, was part of a 2009 economic stimulus program intending to boost the U.S. auto industry. The Texas study finds that the federal program created a drag on the economy because Americans bought cheaper cars than they would have without the stimulus. Fox News finds that the “stimulus” also cost taxpayers $3 billion, but the damage wasn’t entirely economic.

As Wynton Hall of noted last year, Cash for Clunkers drove up car prices and unleashed an environmental nightmare by “shredding, not recycling, many of the 690,000 cars people traded in for an up to $4,500 car credit.” For Hall it was a classic illustration of “the law of unintended consequences.” And Hall has company in the old-line establishment media.

Way back in 2011 Brad Plumer conceded in the Washington Post that the program’s naysayers were right. Cash for Clunkers was “a pretty lousy bargain as far as carbon policy goes,” and “even if the program did have some benefits, it’s hard to argue that it was an efficient way to dole out cash.” Last year Craig Eyermann cited estimates that “the $2.85 billion program really produced a $1.5 billion deadweight loss to the U.S. economy.” On the other hand, the program is only one of many federal clunkers.

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August 2014