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A new study concludes the governments Cash for Clunkers program was a bit of a clunker. The research by two economists concludes the program did help auto sales for the two months it was in place. But pretty quickly after that, it hurt auto sales by the same amount.

NPRs David Kestenbaum is with our Planet Money team.

DAVID KESTENBAUM: If you took advantage of the Cash for Clunkers program, it was a great deal. Trade in your clunker and get money from the government to help you buy a new, more fuel-efficient car.

(Soundbite of ad)

Unidentified Man: Cash for clunkers, offering up to $4,500 toward a new car with an eligible trade-in.

KESTENBAUM: But for economists, this was a chance to fight over - sorry, I mean test - a big idea. Does this kind of government stimulus work? And not just in the short term. Obviously people are going to take advantage of the program. But does it entice people to buy cars who werent already going to buy them this month or next month? Does it meaningfully stimulate the economy?

The problem is, to really answer this question you need something we dont have: a parallel universe.

Mr. AMIR SUFI (University of Chicago): Yeah, that's exactly right.

KESTENBAUM: This is Amir Sufi, an economist at the University of Chicago's business school. You want a parallel universe where there was no Cash for Clunkers so you can see how the program changed peoples buying. You need what scientists call a control group.

Mr. SUFI: You need to answer the question: What would have happened in the absence of the program? That's the key question.

KESTENBAUM: Sufi thinks he's found a sort of parallel universe. Maybe you live there: Arizona, or Nevada, or Florida. All, for some reason, had few clunkers relative to the rest of the country.

Mr. SUFI: Then you can compare other areas of the country to assess whether or not this program actually had a long term effect.

KESTENBAUM: Sufi says he had no idea what the answer to this experiment would be. He and his colleague, Atif Mian, started monitoring car sales last year, all over the country, as the clunker program was ending.

Mr. SUFI: We were just waiting. Waiting every month as the numbers would come in. And that just shows you, I mean we had no knowledge of what the numbers would be.

KESTENBAUM: And initially they saw a bump.

Mr. SUFI: There was a big increase in auto sales induced by the Cash for Clunkers program. We estimate about 360,000 cars.

KESTENBAUM: Then the program ended and that bump in sales turned to a dip relative to what they calculated sales would have been.

Mr. SUFI: Eventually we realized, starting about the spring of 2010, that the reversal was stunning.

KESTENBAUM: In just seven months it was all a wash. The dip in sales also added up to 360,000 cars. So Cash for Clunkers helped. And then it hurt.

Mr. SUFI: We don't take a stand on whether thats a useful thing. It's hard to answer that question. You could argue that if you're in the depths of a really bad recession, maybe shifting purchases of automobiles by even a couple months, maybe that's a useful thing to do. But I think it's incredibly important for policymakers to understand whenever you induce the purchase of any good, whether it be homes, whether it be a washing machine, you are in some sense stealing those purchases from the very near future. And I think thats the key result of our paper that ends up mattering.

KESTENBAUM: President Obamas Council of Economic Advisors has called the Cash for Clunkers program a success. Christopher Carrol was a senior economist there until last month, when he returned to Johns Hopkins University. This study has not changed his mind.

Mr. CHRISTOPHER CARROL (Johns Hopkins University): One thing that economists have reluctantly learned over the years is that sometimes, in fact very frequently in economics, you cant ever tell really what would have happened by just looking at the raw data. You've got to ask people what were they thinking.

KESTENBAUM: And, he says, there was a survey asking people who traded in their clunkers: Were you about to buy a car anyway? How soon?

Mr. CARROL: They said they wouldnt have bought another car for two and a half, three years.

KESTENBAUM: Suggesting that the Cash for Clunkers program did convince people to buy cars they wouldnt have for a long time to come, and did boost the economy in a useful way. Amir Sufi says hes checked his results every which way and thinks they are rock solid. The paper is being released this morning.

David Kestenbaum, NPR News

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