It seems that Cash for Clunkers has run its course, and the administration is declining to re-fund the program for a third time. (Cash for Clunkers gave rebates to consumers who traded in their older cars while purchasing newer, more fuel-efficient models.) The surprise popularity of the program reminds me a little of the "bold experimentation" spirit of the New Deal, when various programs were tried in rapid succession -- some failed, some took off, and this one falls in the latter category. CARS, as it was officially known, turned out to be a nicely executed piece of temporary, effective fiscal stimulus, with some environmental benefits to boot. One question remaining is what will happen to auto demand now that the program is over. I think conservative arguments that the program has simply expended all pent-up demand quickly, rather than stretching it over time, are false, and this post does a good job explaining why -- essentially, lower prices don't expend demand but increase it. Car sales will probably decline a little in the short term but return to normal levels as the economy improves. Incidentally, the Weekly Standard's Matt Continetti and I argued about Cash for Clunkers in this Bloggingheads segment. Matt was concerned that this would become a permanent subsidy to the auto industry, in part because the government owns a big chunk of it; I argued that this was a timely fiscal stimulus that wouldn't be renewed a third time because Congress is leery of further spending to help the economy and the marginal benefits of this kind of subsidy would start to decline. Looks like I won this round, but the point is this: temporary fiscal stimulus is just that, not some kind of back door for permanent government intervention in the economy.-- Tim Fernholz
