Joker’s Top Economist Tries To Downplay Cash For Clunkers Sales Figures
Oct 29, 2009 3 Comments ›› Erik Wong
The Obama administration (White House and Transportation Depatment) did some heavyweight policy sparring with Edmunds.com today over criticism that Cash for Clunkers might have cost taxpayers $24,00o per vehicle sold.
Edmunds.com came to that figure by estimating that only 125,000 of the Cash for Clunker program’s 691,000 documented vehicles sales were a direct result of cash incentives.
The White House fired back as did DOT, arguing in pretty strong language, alleging that Edmunds’ was calculating mystery auto sales on Mars and missing real show-room deals in the grand old USofA (okay, it didn’t say the USofA part).
I asked top White House economist Jared Bernstein about the Edmunds.com flap late Thursday. Here’s his answer.
“It may well be the case that some of the sales in Cash for Clunkers were sales that would have occurred anyway, but wouldn’t have occurred when they did. In other words, I’m sure that some of those sales were pulled forward – maybe a quarter, maybe 6 months, maybe a year. And that’s okay, especially when you look at today’s GDP report where we are posting positive growth and where consumer durables including autos is a big contributor, we really need that growth now. Pulling sales forward is actually helpful.”
Late today, Edmunds said this in response to the White House:
“The White House claims that our analysis was based on car sales on Mars and that on Earth, the marketplace is connected. We agree the marketplace is connected. In fact, that is exactly the basis of our analysis.
It is also claimed we missed the possibility that Cash for Clunkers generated excitement and consumers bought vehicles even if they didn’t qualify for the program — a claim that has been widely supported by anecdote but by little analysis. It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don’t qualify — doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy.
Finally, the White House claims that the increase in fourth-quarter production reported by the car manufacturers can be attributed to Cash for Clunkers. But here is a better reason: the economy is recovering accompanied by improved car sales. No manufacturer increases production — a decision with long-term consequences — based on the 30-day sales blip triggered by an event like Cash for Clunkers.
With all respect to the White House, Edmunds.com thinks that instead of shooting the messenger, government officials should take heart from the core message of the analysis: the fundamentals of the auto marketplace are improving faster than the current sales numbers suggest.
Isn’t this a piece of good news we can all cheer?”
I also asked Berstein if Federal Reserve moves to keep interest rates at record lows played any role in the postive Q3 GDP numbers. He said no. He said low interest rates helped keep the economy from slipping deeper into a hole, but it was stimulus dollars — and those alone – that generated growth.
“The is very much a Keynsian (John Maynard) demand-side program to help to produce jobs for the American people, to create economic activity that wouldn’t be there in the absence of this package. We’re talking about the greatest recession since the Great Depression. That’s kind of on the demand-side of the equation. At the same time, the Federal Reserve, by injecting liquidity into the financial side of the economy, is trying to thaw some of those credit lines out there helping to stabilize the financial sector. So, in one sense the stimulus gets the heart beat of the economy’s demand going, where the federal reserve sort of clears out the blood stream, gets the blood flowing again.”
University of Maryland economist Peter Morici says the White House has it backward.
“The Fed is much more responsible for the improvement in the economy than the stimulus. Most of the stimulus money was either saved, or it’s not spent yet. The fed keeping interest rates at rock-bottom levels made the Wall Street banks very profitable. (That) helped a lot – although now they’re not sharing those profits, they’re stuffing them in their pockets, and they’re not loaning money to small businesses.”
Moreover, Morici fears the solid Q3 GDP numbers are a blip in what may prove to be a painfully slow recovery.
“Three-point-five percent is a terribly deceptive number. A good deal of that was Cash for Clunkers, which won’t repeat. We’re probably going to be growing at 2 to 2-and-a-half percent a year going forward and that’s not enough to bring down unemployment. We should really have a number of 5% or 6% coming out of a recession like this. That’s the norm, this means the economy is not healthy at all.”
