Who’d a-thunk it? ‘Cash for Clunkers’ was an epic failure in Keynesian-style stimulus at a cost of $1.4 million per job

Read the whole thing at Carpe Diem and follow the links. Excerpts:

Ted Gayer and Emily Parker of the Brookings Institution conducted an economic analysis of the 2009 Car Allowance Rebate System (CARS) or “cash for clunkers” program, where they considered the numbers of vehicles traded-in, the impact of the program on GDP, the cost per job, the environmental impacts, and the types of consumers who took advantage of the program. Here are some of the main conclusions of their article “Cash for Clunkers: An Evaluation of the Car Allowance Rebate System” (press release here):

1. The evidence suggests that the CARS program provided a short-term boost in vehicle sales of approximately 380,000 vehicles, which were pulled forward from sales that would have occurred in subsequent months. The net result of CARS was a negligible increase in GDP, shifting roughly $2 billion into the third quarter of 2009 from the subsequent two quarters.

2. The $2.85 billion program provided a short-term boost in vehicle sales, but the small increase in employment (2,050 jobs) came at a far higher implied cost per job created ($1.4 million per job) than other fiscal stimulus programs, such as increasing unemployment aid, reducing employers’ and employees’ payroll taxes, or allowing the expensing of investment costs.

3. Compared to households that purchased a new or used vehicle in 2009 without a voucher,CARS program participants had a higher before-tax income, were older, more likely to be white, more likely to own a home, and more likely to have a high-school and a college degree.

Mark Perry: As is usually the case with government spending in general and government stimulus programs like CARS in particular, the government can shift and re-allocate resources, jobs, output, sales and income from one group to another group in the economy, or shift GDP, jobs and car sales from one time period to another period, but government stimulus can’t ever create an overall or net increase in jobs, wealth, income, output or prosperity. As I pointed out in a recent post (that quoted Henry Hazlitt and generated almost 200 comments) government stimulus can at most only re-distribute and re-allocate jobs, income and wealth. But in most cases, the government’s forcible redistribution will actually make us worse offbecause of government inefficiency (e.g. spending $1.4 million per job) and its inability to re-direct private resources to their highest and best use.