The recession has ended. Or so the administration would have us believe with the announcement that gross domestic product rose 3.5% in the third quarter. GDP is defined as the sum of consumption, investment, government spending and net exports (exports less imports). The figures released by the Bureau of Economic Analysis (BEA) of the Department of Commerce are “advance” estimates based on only two month’s data, and come with these notes:
• Consumer spending turned up strongly. Spending on new cars and trucks was a big contributor, reflecting the federal “cash for clunkers” program, which was in effect in July and August.
• Housing increased for the first time in 15 quarters.
• Inventory investment, exports, and government spending also added to growth.1
The BEA estimates that “motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP” 2; that is, almost half of the increase. When the government throws money at consumers, the GDP is boosted two ways by the definition: in this case 0.48% for government spending and 2.36% for personal consumption (including the 1.66% of vehicles) for a total effect of 2.84%. The balance of the 3.5% GDP increase comprised investments, +1.22%, and net exports, -0.53% (imports exceeded exports, and the net reduced GDP).
The hypothesis that government incentive drove consumption in Q3 was confirmed by the data released a few days after the GDP announcement showing consumption declined 0.5% in September. The Wall Street Journal reported, “The decline was largely attributed to reduced car sales a month after the ‘cash for clunkers’ program ended. Spending on durable goods such as cars and other products designed to last more than three years fell 7%, more than erasing gains from a month earlier.” 3
Was the transitory cash for clunkers program worthwhile? According to the Department of Transportation, the government spent almost $3 billion to help 690,000 consumers trade old vehicles for new 4. The average increase in miles per gallon was 9.2. Using the DoT’s numbers, on average we spent $4,170 per vehicle in order to help the owner save 278 gallons per year5 or, at $2.80/gallon, $778. In aggregate we are saving 191.8 million gallons of fuel per year. Sounds like a lot? The U.S. consumes 378 million gallons per day 6, which means that all these gymnastics save only half a day’s fuel annually.
Did the program help put a dent in oil imports? Again the answer is ‘no’. We import roughly 13 million barrels of oil per day 7. At $80 dollars a barrel, we send about $1 billion overseas daily. Those 191.8 million annual gallons saved by the clunkers exchange are equivalent to roughly 12,515 barrels per day 8 which equates to $1 million/day. This is a trifling one thousandth (1/1000) of our daily imports. Put another way, these vehicle fuel savings will take eight years to cover the government’s borrowing $3 billion for the program 9. And that does not include interest our children will pay on that debt.
Have we helped the automakers? Again, according to the DOT statistics, ten of the top ten vehicles traded-in were American. Of the top ten new vehicles bought, eight were foreign. Music and dancing were heard on the streets of Tokyo and Seoul.
Secretary of Transportation Ray LaHood called the program a “win for the environment”, but is it? According to the government’s web site, we emit 17 billion tons of greenhouse gases each year from our vehicles 10. The fuel saved from the clunkers programs will save a nugatory 1.9 million tons/year: about one ten-thousandth (1/10,000) of the nationwide emissions 11.
With the these indefeasible facts, one has to look at The White House paean to the 640,329 jobs “created/saved”—miraculously up from only 30,383 just a few days ago on Recovery.gov—with economist Alan Meltzer's skepticism, “One can search economic textbooks forever without finding a concept called ‘jobs saved’.“ 12
Evidently, there are a few other things one cannot find in those books.
 GDP Rises 3.5 Percent In Third Quarter, “Advance” Estimate of GDP, Bureau of Economic Analysis http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp3q09_adv_fax.pdf
 Gross Domestic Product: Third Quarter 2009 (Advance Estimate), Bureau of Economic Analysis
 Consumer Spending Falls, Fueling Concerns About Recovery , 31 Oct. 2009, The Wall Street Journal, http://online.wsj.com/article/SB125690429096718435.html
 US Department of Transportation: http://www.dot.gov/affairs/2009/dot13309.htm
 a) $2,878M/690,114 vehicles = $4,170
b) Assuming 12,000 average miles driven/year/vehicle:
12,000/24.9 MPG (new vehicle) – 12,000/15.8 MPG (traded vehicle) = 278 gallons/vehicle
 Energy Information Administration: http://tonto.eia.doe.gov/energyexplained/index.cfm?page=oil_home#tab2
 Energy Information Administration: http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm
 Using a DOE factor of 42 gallons/barrel of oil: (191.8 million gallons/year) / (42 gallons/barrel) / (365 days/year) = 12,511 barrels/day
 $3 B / ($1 M x 365 days/year) = 8 years
 FuelEconomy.gov, http://www.fueleconomy.gov/feg/climate.shtml
 191.8 million gallons saved/year x 19.4 pounds of CO2 emitted/gallon / 2000 lbs./ton = 1.86 million tons
 "Stimulus Created/Saved 650,000 Jobs? There’s No Way to Know for Sure", 30 Oct. 2009, The Wall Street Journal, http://blogs.wsj.com/economics/2009/10/30/stimulus-created-or-saved-650000-theres-no-way-to-know-for-sure/