Cash for Clunkers cost how much?
As the debate intensifies on whether and what form to extend the home buying tax credit, one argument against it is why give a credit to someone who planned on buying a home anyway. With 85% of 1st time home buyers who were eligible to collect the tax credit planning to buy a home anyway, the Brookings institute estimates that the $8,000 credit equates to a cost to the taxpayer of $43,000 per home. This is based on the belief that 85% of the almost 2mm buyers are getting free money. Edmonds.com today is estimating that the Cash for Clunkers program cost taxpayers $24,000 per vehicle sold. They estimate that 82% of sales would have happened anyway and thus the handout of up to $4,500 really only enticed 18% of the buyers of 690k vehicles sold under the program.
October 28th, 2009 at 4:29 pm
Utter and absolute corrupt morons who are making it worse.
October 28th, 2009 at 4:33 pm
God, ain’t that the truth davos. I hope there’s a judgment day for all the immoral behavior going on these days.
October 28th, 2009 at 4:39 pm
actually, I would say it is at least $43k*2=86k per home. why that? because a lot of people who plan to buy a car but not qualify CFC stupid program have to postpone their purchase. Just like me.
I have to take bus, or drive with my wife now instead of buying a new car. stupid! enticed 18% of the buyers , but at same time may drove off way more people offline.
Why I have to pay this stupid $4.5k to dealer (as the price goes up way more than $4.5k)
the law of free market will show that.
October 28th, 2009 at 4:48 pm
I would like to see the math behind that $24,000 figure wrt Cash for Clunkers.
People forget that the big winners in the cash for clunkers program were the state and local governments that recieved sales taxes and vehicle registration fees immediately.
In most instances the entire handout was passed thru to the state. So a $40,000 vehicle sold in CA under Cash for clunkers would send ~$3,400 in sales taxes and $560 in vehicle registration fees to the state for a total of $3960…
Makes you wonder how they came up with the $4,000 figure!
October 28th, 2009 at 4:51 pm
” I hope there’s a judgment day for all the immoral behavior going on these days.”
They should be tried and hung for treason in the town square for a reminder to the next generation of bankers, regulators and elected public servants.
Watching “Warning” on PBS Frontline made me realize these whores turn tricks for lobbyist and politicians at the cost to us and our children and the democracy/republic.
October 28th, 2009 at 5:23 pm
And GM is back at the trough. I guess the effects of CFC weren’t that long lasting.
October 28th, 2009 at 5:34 pm
Agreed, put_seller. There seems to be a booming market is devising stupid metrics for stupid people to latch onto.
October 28th, 2009 at 5:34 pm
And the other $4,500 that the person-who-would-have-bought-a-car-anyway had in his/her pocket vaporized into the atmosphere?
Something tells me that’s not the case. Probably safe to assume most financed the car. This person probably either bought a car worth $4,500 more, or added $4,500 more in options, or saved ~$100/mo on payments over the next 4 or 5 years which get’s spent on more cable stations, an extra dinner out here and there, a subscription to something, or some combination of things. If he/she had a 5 figure wad of cash burning a hole in his/her pocket to buy a particular car with, I’m sure he/she found another shiny thing or vacation to spend the remaining $4,500 on. Do the people who produce this stuff know how middle class people (the bulk of people buying new cars) really live? Sure some of it is sitting in savings accounts, but all of it!? Common! People adjust their lifestyles to match their disposable income. Not everyone shredded their 45 “Benjamins” and stuffed it in their bong like analyst at Edmond’s.com apparently did (thus vaporizing it into the atmosphere).
Plus, this isn’t a very good comparison since the math is going to be different in the housing market, because it has more to do with how it supports (pushes up) housing prices. But so doesn’t dropping interest rates, something else the government can do.
October 28th, 2009 at 5:51 pm
“Not everyone shredded their 45 “Benjamins” and stuffed it in their bong like analyst at Edmond’s.com apparently did (thus vaporizing it into the atmosphere).”
Reasoning like this is why we are over $80,000,000,000,000.00 in debt when we as a nation make less than $14,000,000,000,000.00. It is why our dollar will have a value of 0.00 instead of the 0.04 cent of buying power it carries now.
We take in 2 trillion and we blow 4 trillion and we can’t finance the difference. I don’t know where you work, or what you make a year but printing money like this is robbing your wealth – an mine – and everyone else’s.
October 28th, 2009 at 6:35 pm
@Davoss…, what’s robbing our “wealth” is 10’s of million of people continuing to sit around and not add “wealth” to the economy because they don’t have a job. A few billion on feel good programs like “cash for clunkers” to restore consumer confidence (and keep a few auto workers working in the process) pays for itself pretty quickly. This is exactly my point: you can’t say it cost $24K per car, because the effect looks absolutely nothing like that. This is the same reason you don’t just have Uncle Sam buy a few billion worth of $24K new cars and crush them. That does not produce the same effect. For one, it doesn’t have the time-value-of-money that the program did. And more importantly, it does not have the psychological effect. If you refuse to accept that human psychology is a big part of this, then you’ll fail to understand how to fix it. That’s not to say a balancing the budget doesn’t have some advantages, especially during boom times, but it’s not something you worry about too much during a recession.
On top of that, the US continues to carry a trade deficit, even though the dollar is apparently doomed to lose most of it’s value. If they’re so worthless, why do people keep giving us stuff for them? If the dollar really does go down that much, our export economy will be so amazing, it’s hard to fathom. There might be a little pain getting used to the change back to more domestic manufacturing, and some might need to move from buying Merc’s to Caddy’s, but being a well educated resource rich country, we would quickly regain our economic dominance if that were the case! So all we really have to worry about is those pesky Canadians, with their economy so closely tied to our and their vast natural resources.
October 28th, 2009 at 6:58 pm
@Brendan: You don’t get it. We are as insolvent as Enron. The fix is to devalue the dollar and re-denominate it.
Stimulating the economy is one thing when you: A.) have a plan that puts more than .06 cents of a dollar back into the economy and B.) When you are a creditor nation – not the worlds larges debtor nation. In other words, if we had a solvent balance sheet and we put this into solar, wind and EV cars yeah.
Giving a crack addict more crack will OD him.
You are being robbed each day with the printing. You work from January to September to pay taxes. You might want to read up a bit more before you commend the idiots and morons who are robbing you all the way to the poorhouse.
October 28th, 2009 at 7:48 pm
@davoss…, Enron is not a national economy, it’s a company. You can’t compare the two. Enron was purposefully disrupting deliveries (of which they had a critical share of) of a product (electricity – critical to the functioning of our economy) to create artificial scarcity and increase prices by hundreds of percent. Even that couldn’t stop California in its tracks. What the government is doing, at worst, is artificially decreasing prices (on a luxury item) and increasing demand in a sector of the economy at the expense of causing a minuscule devaluation of the overall currency of the much larger economy. The idea is that the intended consequences will outweigh the worst-case costs. I understand perfectly well that printing money devalues a currency. However, we’re printing it at a rate no where close enough to cause a collapse. Exporting billions of dollars for oil is a problem. Letting some Japanese holders of Toyota stock get a slightly bigger dividend from what little actually makes its way to the corporate level is not a crisis. Part of the beauty of the program was that, in the long run, the reduction in foreign oil demand should outweigh any trade deficit increases incurred by the program.
At the end of the day, the only thing that has potential to cause true catastrophic economic harm is our reliance on imported energy, and that is only because we’re not prepared if the tap was cut. Everything else we import is icing on the cake that would be absorbed by the overall US economy.
October 28th, 2009 at 9:32 pm
@Branden: Don’t think so. Insolvent IS insolvent. Our books (GDP CPI off balance debt) are all as cooked as Enrons. And when you get into a 2 trillion dollar deficit the gig is up, the debt can can’t be kicked down the road.
Time will tell.
I do agree with you on oil. Quite frankly, I think we are well past peak given the demand in Asia. With oil above 70, which is where they need it to get to the harder to get to oil, the economy won’t be going anywhere but down. No stimulus will change that.
October 29th, 2009 at 8:00 am
“This is based on the belief that 85% of the almost 2mm buyers are getting free money”
And where is the evidence for this belief? Or is this just a matter of faith, like the ideology that drives the Brookings Institute?
I don’t like these government incentives one bit, but I understand where they’re coming from. Brookings has a vested ideological interest in killing them and ‘proving’ that the Democrats are terrible.
Where were they when Bush and Paulson gave billions away to Wall Street? THAT wasn’t a total waste of money???
October 29th, 2009 at 8:40 am
@dark1p: +1 !!! $700,000,000,000.00 in exchange for troubled assets and it quickly became “Here take the money.”
The bottom line though: These morons created the mess and they are now making it worse.
http://www.pbs.org/wgbh/pages/frontline/warning/view/
October 29th, 2009 at 9:41 am
“And the other $4,500 that the person-who-would-have-bought-a-car-anyway had in his/her pocket vaporized into the atmosphere? ”
Exactly. No matter how many times they push these same deceptive numbers won’t make it true.
…
“one argument against it is why give a credit to someone who planned on buying a home anyway”
‘One argument’ is that it will help keep hundreds of thousands more mortgages from defaulting due to a vicious cycle of dropping prices -> more underwater homeowners defaulting -> more banks fail and dump inventory -> dropping prices.
This isn’t rocket science. Get more good mortgages in the system, provide modest price support and stimulate the economy with a reward targetted squarely at the middle class and people that weren’t part of the bubble.
October 29th, 2009 at 10:07 am
Just another “unintended consequence” of cash for clunkers, along with the increase in used car prices and the decrease in car donation.
October 29th, 2009 at 1:44 pm
[...] say we officially call this one Cash For Houses: With 85% of 1st time home buyers who were eligible to collect the tax credit planning to buy a home [...]
October 29th, 2009 at 2:18 pm
Average increase in housing prices in my area are at least $50K per home since the first time homebuyer’s credit kicked in. If you assume the government is backstopping many of the homes being sold, the $8,000 cost has to be offset against the increased return on capital.
Some stats here:
http://activerain.com/blogsview/1207279/sellers-market-demolishes-first-time-home-buyer-credit