Posted by Joseph Y. Calhoun, III

Last year, Cash for Clunkers was hailed as a success by President Obama:

In his radio address on Thursday, President Obama said the program, designed to stimulate auto sales and production and get gas guzzlers off the road, had “been successful beyond anybody’s imagination. And we’re now slightly victims of success because the thing happened so quick, there was so much more demand than anybody expected, that dealers were overwhelmed with applications.”

What the President discovered was that if you offer people a financial incentive to do something - especially something they were going to do anyway - you’ll get lots of takers. 700,000 cars were purchased during the program and I’m sure some of them would not have happened without the subsidy. How many? I have no idea but the cost of the incremental sales was surely more than the $4500 offered by the program per car. The bottom line is that the program may have had a minor - very minor - positive impact on the economy but it is hard to calculate.

To me the most egregious element of the program was its effect on the poor since it was bound to raise the price of perfectly serviceable used cars. Here’s what I said in a post entitled, Broken Clunkers:

One last thing to consider is the effect on the poor. While politicians like to pose as defenders of the poor, this is just another program that does the opposite. At least some fraction of those clunkers being destroyed were potential cheap transportation for the working poor. Now the market for low priced older cars will face a lack of supply and the prices of the remaining “clunkers” will rise. If the goal was to eliminate cheap transportation for the poor and force them onto public transportation, well, then the clunkers program is a rousing success. If the goal was to create economic growth, then not so much.

So how much of an effect did this program have on the price of used cars? The recently released July Consumer Price Index shows a 17% rise in the price of used cars and trucks in the last year. I don’t know the average cost of a used car but a 17% rise in price probably priced at least a few people out of the freedom provided by a car. It may have prevented them from getting to a new job or kept them on public transportation when they could be home with their families. So my question is this: Was President Obama and the other politicians who pushed this program just too ignorant to anticipate this very obvious result? Or did they just not care? Strangely, I hope its the former….

Update: Jeff Jacoby has a good article on the same subject at Boston.com