Advancing a Free Society

Cash for Clunkers in a Macro Context

Monday, October 25, 2010

More empirical studies are demonstrating that temporary fiscal stimulus actions are a poor way to get the economy moving again on a sustainable basis. More permanent and predictable policies are much better. I demonstrated this problem in the case of the stimulus packages of 2008 and 2009, but perhaps the clearest case is the “cash for clunkers” program of July and August 2009. To illustrate the problem quantitatively, it is useful to put some new micro-empirical results of Atif Mian and Amir Sufi into a macroeconomic context, as I do with the following charts.

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