Episode 21: The $3 Billion Program That Backfired

In the summer of 2009 the federal government paid Americans to destroy nearly 700,000 working cars. The program was called Cash for Clunkers, and the three-word name did more work than the three billion dollars behind it.

This episode shows how a slogan from a Princeton economist's op-ed pre-sold an entire federal policy before a single dollar was appropriated. We trace the program from Alan Blinder's 2008 New York Times piece to the dealership lots where engines were filled with sodium silicate and run until they seized. We look at what people actually traded in (84 percent trucks, SUVs, and vans) and what they drove away in (Toyota Corollas and Honda Civics), and why that created a political headache for a program meant to rescue the American auto industry. Then we get into the part the evening news skipped.

Edmunds estimated only about 125,000 of the sales were genuinely new, which works out to roughly twenty-four thousand dollars in taxpayer money per incremental car. Used car prices rose. Donation charities like the Car Ministry watched their supply dry up. A Texas A&M study called "Cash for Corollas" found the program may have reduced total new vehicle spending by five billion dollars. We close with the psychology: prospect theory and loss aversion from Kahneman and Tversky, and the moral licensing research from Khan and Dhar that explains why "doing your part" for the environment felt so good. Plus two real people, on opposite sides of the same program, in the same summer.