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Source link: http://archive.mises.org/11005/the-clunker-effect/

The Clunker Effect

November 9, 2009 by


Fephisto November 9, 2009 at 3:05 pm

Looks like a dead cat bounce.

Arend November 9, 2009 at 3:15 pm

What’s the mid-2005 spike?

Whit November 9, 2009 at 3:16 pm

Changing time preferences of vehicle purchases through the use of wealth distribution… this was supposed to help how again?

Wayne November 9, 2009 at 3:24 pm

@Whit: it makes the numbers look good to keep the sheeple in line. Even if it’s temporary they’ll forget how bad it was before that.

I think this chart speaks for itself. The artificial spike came right back to where it was before, proof it had no positive long term effect and it’s quite possible it had a long term negative effect. I also appreciate spending 24,000 tax dollars per car if you go by edmonds.com math.

CRL November 9, 2009 at 4:03 pm

The 2005 spike was likely from hurricanes Katrina and Rita.

Frederic Bastiat November 9, 2009 at 4:11 pm

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to destroy a car? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the automakers if cars were never destroyed?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the automaker’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The automaker comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break cars, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a car to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Frank November 9, 2009 at 4:30 pm

Looks similar in Germany. I suppose it looks similar in any country with clunker schemes. German government has spent 5 bn € for nothing :(

Seattle November 9, 2009 at 6:00 pm

When was the last time Government spending has accomplished ANYTHING?

Paul Krugman November 9, 2009 at 6:30 pm

The spike is proof that government stimulus WORKS. The crash is because the government stopped stimulating! If the stimulus was big enough, we would have a PERMANENT QUASI-BOOM.

Gerry Flaychy November 9, 2009 at 7:41 pm

The only thing that the spike of 2009 prove, is that there was a stimulus. A stimulus works when, after its application, the ‘heart’ restart to beat by itself, and there is nothing in the graph showing this effect. So the stimulus did not worked.

And remember that a bigger stimulus could bring death !

John Maynard Keynes November 9, 2009 at 8:55 pm

The easiest way to get a working stimulus is not to raise the interest rate but to lower the interest rate! The spike in the graph is evidence that a 0%-0.25% interest rate is near optimal for the centrally planned USA. But we’re looking for permanent quasi-booms, not just little spikes. And to do with we must set the interest rate to exactly 0%.

Garry Kasparov November 9, 2009 at 9:23 pm

Beautiful comments. Why are most people in love with their delusions? Why can’t they see the truth even when explained so elegantly and simply by M. Bastiat. <3<3<3 Sometimes I can’t live in this world.

Tom E. Snyder November 9, 2009 at 10:02 pm

The mid-2005 spike was Employee Pricing. I bought my Malibu in June 2005 and supposedly got the same price as employees did.

Jake W. November 9, 2009 at 11:27 pm

To Tom Snyder: I don’t think the 2005 spike was caused by employee pricing, because don’t many car manufacturers off “employee pricing” as a annual event? Perhaps however, 2005 was the first time this gimmick was employed and it was such a great idea, the public ate it up; and since then the novelty as worn off.

Gerry Flaychy November 10, 2009 at 10:19 am

There is a difference between the ‘broken window’ story and the ‘broken clunker’ situation: in this last one the broken clunker is paid for by another entity than the consumer, thus enabling this one to keep his ’6 francs’ to buy something else; while in the broken window case, the seen one, of the ‘broken window’ story, the window has to be paid by this 6 francs, leaving the consumer unable to use it to buy something else.
( story : http://mises.org/daily/3804 )

Thus the clunker situation is like the case in the ‘broken window’ story where the window is not broken, the unseen one : the consumer can continue to enjoy what he already have, plus something additional, i.e., in the ‘broken clunker’ situation : a car, but a better one.
( unseen one case : http://blog.mises.org/archives/010954.asp#c622324 )

Shay November 10, 2009 at 3:29 pm

“Thus the clunker situation is like the case in the ‘broken window’ story where the window is not broken, the unseen one”

No, because something that worked fine is getting destroyed, rather than given to the market to find the best use for, and money is stolen from others to pay for the rebates. Force is being used to pervert the market; just ask used car dealers about the effects on their businesses.

Gerry Flaychy November 10, 2009 at 3:37 pm

Stimulus for cars doesn’t necessarily means stimulus for the economy as a whole.

The money spent on cars cannot be spent elsewhere. Thus, if 10 000 $ is spent on a car instead of a fur coat, or anything else, then, for the economy as a whole, it’s the same thing that spending 10 000 $ on a fur coat, or else, instead of a car : it doesn’t change anything.

So, for the economy as a whole, it is not even a stimulus !

Gerry Flaychy November 10, 2009 at 4:14 pm

Shay, the problem that you’re showing in your post is another difference between the ‘broken window’ story and the ‘broken clunker’ situation: that makes two !

Shay November 10, 2009 at 5:09 pm

Yes, in the broken window story, the shopkeeper cannot use his money to further his well-being; he must use it to merely restore it to its previous level. But in the cash-for-clunkers story, perfectly usable cars get destroyed (broken windows), and the people using the program spend other people’s money to help pay for new cars for themselves. In the broken window story, this would be the shop owners stealing money from the towns people in order to install new double-pane glass, and destroying all the old panes they removed.

Gerry Flaychy November 10, 2009 at 5:40 pm

Shay, I agree with your view. I like your ‘new double-pane glass’ example: good finding !

tfr November 11, 2009 at 11:10 am

Anyone got data on USED cars?
I suspect the spike might go in the opposite direction, and then stay there, since we destroyed all the trade-ins by gov’t mandate.

Glen November 11, 2009 at 5:33 pm

Gary K,

Time preferences and the tendency to find excuses (esp. if the excuse can be made to seem noble) to act the way one wishes to act.

Roger November 12, 2009 at 11:09 am

Can someone please briefly explain what exactly the line in this graph represents? My simple reading, for example, is that in some nonspecific period around mid-2005 over 20 million vehicles were sold, and in some other period somewhat later around 15 million vehicles were sold. That’s 35 million units in just two short periods that year, not to mention the other points on the line during 2005. Sorry, I don’t understand the basic graph and what it is depicting, although the Cash for Clunkers spike is obvious. Thanks!

Ron November 16, 2009 at 2:19 pm

I just think it’s funny that the graph isn’t shaded all the way to the end.

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