I was reading through comments at the WSJ the other day when a poster drew a connection between Cash for Clunkers and healthcare. The general idea followed this line of reasoning (paraphrasing):

Do we really want to entrust healthcare to the same entity that generated the massive failure of Cash for Clunkers.

I’m not really sure that is a fair question, as some I’ve asked have said that their opinion is that Cash for Clunkers was always meant to be a failure, financially at least. For some strange reason, that does almost make sense.

In any event, I was curious as to how Cash for Clunkers shaped up in terms of a return for the taxpayer.

I broke the analysis in the following parts:

1. Capital Outlay 1: total claims in dollars
2. Capital Outlay 2: financing expenses
3. Return 1: savings from the cost of oil
4. Return 2: dividends from auto manufacturers
5. Return 3: cash equivalent of the environmental impact

Each of these is viewed as marginal, in that they would not have otherwise occurred.

The executive summary: Cash for Clunkers created a -34% return for taxpayers.

A pdf showing the full analysis is attached here.

Essentially, the argument follows the line that tax dollars were used to stimulate the economy, aid the auto manufacturers, and generate a benefit to the environment. To accomplish this, we spent $2.9 billion. In return, we saved $1.3 billion on oil, and in theory would receive $1.1 billion in additional value or dividends through ownership of auto manufacturer stock (assuming all equity is owned by US taxpayers - probably not a valid assumption). We also saved CO2 emissions to the tune of 11 million tons. However, because not everyone can pay cash for these new vehicles, additional financing costs of $0.8 billion would need to be incurred.

The end result is that on our $2.9 billion investment, our return is ($1.0 billion).

To be fair, I tried to keep my assumptions, where used, conservative, in that I did not deliberately try to force this into a negative return situation. This statement alone will reveal my preconceptions, but if anything my awareness of these notions was heavily guarded against. From that standpoint, I think the bulk of the analysis can withstand argument. However, I would appreciate any feedback on the approach and results.