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The True Cost of Government Subsidies

Preliminary sales numbers came out for August at 14.1M cars.  Last month came in at 11.3M so we so quite a bump due to the Cash for Clunkers program.  The real question is: how many cars did we actually incentivize the public to buy because of the cash for clunkers program?  We do not care about the guy who was already going to buy a car in August, we only care about the marginal buyer who was coerced into buying a car due to the program.  The sad truth is not very pretty.

There were about 940,000 cars sold in July of 2009 and we can assume that about that many cars would have been sold in August had there not been a government sponsored program.  Let us assume that the difference between what was actually sold (14.1M/12)= 1.175M and what would have theoretically been sold in August of 950k was only due to the government subsidy found in the cash for clunkers program.  That means that the government (taxpayer) spent $3B to incentivize (1,175,000-940,000) = 235,000 car sales.  That equates to $3,000,000,000/235,000 = $12,766 taxpayer cost per car sold because of the cash for clunkers programEven if we were to assume that August was going to be as bad as the worst month this year (April ’09) at 760,000 cars, that would still mean that we, as taxpayers,  spent $7,230 per additional car sold.

Better still, only 4 of the top 10 cars purchased under the cash for clunker program were American.

What a fantastic use of taxpayer dollars.

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  1. Dennis M Corcoran says

    It is unfortunate that many Americans forget that the money spent in Washington ultimately comes out of their pockets. I guess if Obama gets his way with tax increases, some of us working Americans will pay quite a bit more than others. Bet that will have a “wonderful” effect on the economy!

Continuing the Discussion

  1. True Cost of Government Subsidies (Part II) – SurlyTrader linked to this post on September 17, 2009

    […] In my previous post I addressed the true cost of the cash for clunkers program. If you thought that was ugly, let’s analyze the new homebuyer’s subsidy… […]

  2. True Cost of the Tax Credit for Homebuyers – SurlyTrader linked to this post on October 23, 2009

    […] tax credits, but we are vastly overpaying for the economic benefit.  In my previous post about the true cost of government subsidies I stated that taxpayers spent about $7,234 per additional car sold because of the cash for clunkers […]

  3. Cash for Clunkers Cost $24K per Car – SurlyTrader linked to this post on November 2, 2009

    […] for Clunkers Cost $24K per Car In a previous post I estimated, under optimistic assumptions, that the $3 Billion cash for clunkers would cost the […]



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