Cash for clunkers didn't help the economy

Evidence shows that the American Reinvestment and Recovery Act (ARRA), more widely known as the Obama stimulus, worked. An analysis from the White House's Council of Economic Advisers found that the stimulus saved or created about 1.6 million jobs a year for four years, through the end of 2012. The ARRA also raised the level of real economic activity by between 2 and 3 percent from late 2009 through mid-2011. And the extra government debt added by the stimulus may have been entirely offset by new economic activity.

But not every aspect of the broader stimulus program worked. The so-called "cash for clunkers" program — designed to get old, polluting cars off the road, and boost economic activity — didn't help the economy at all, a new analysis finds. The paper "Cash for Corollas: When Stimulus Reduces Spending" by Mark Hoekstra, Steven L. Puller, and Jeremy West finds that "the increase in [auto] sales during the two month program was completely offset during the following seven to nine months" and that "the program's fuel efficiency restrictions induced households to purchase more fuel efficient but less expensive vehicles, thereby reducing industry revenues by three billion dollars over the entire nine to 11 month period."

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