Cash for Clunkers: How bad public policy gets made

Cash for Clunkers: How bad public policy gets made

[I]f you want to better understand how poor public policy happens, it goes something like this.

First, get caught up in the hoopla. Clunkers produced the type of headlines that politicians dream of: helping people buy cars, better fuel efficiency, the promise of job creation, and the word “cash” in the title. (Spelled with a $, if you please.) It was full of the kind of vague simplicity that has great political appeal, but begins to disintegrate as soon as it comes into contact with the real world.

Second, ignore the reality and complexity of human behavior. Proponents never seriously considered that subsidies would appeal most to consumers who were already considering replacing their vehicles. Both studies showed conclusively that the short-term spike in sales simply represented transactions that were pulled forward in time. Legislators’ belief that a temporary $4,500 rebate would result in sustainable sales growth was wrong from the start.

Lawmakers also failed to consider that the owners of “gas guzzlers” and those able to act quickly on a new car purchase tended to be higher income families. In fact, Brookings’ analysis showed that recipients of the credit were wealthier and better educated than the population at large.

Third, set aside basic economics, including the fundamentals of supply and demand. To justify the fuel savings promised under the program, the clunkers returned to dealers were destroyed, rather than resold as used vehicles. A year later, the resulting shortage of used cars pushed prices up an average of 10 percent.

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