Economist as Detective

Here is a very nice posting by the economist Steven Levitt. It shows (a) how an economist thinks about a problem and (b) how anybody can use a rough calculation to check whether something makes sense.

Is Somebody Lying About “Cash for Clunkers”?

By Steven D. Levitt

The numbers just don’t seem to add up.

The “Cash for Clunkers” program gives roughly a $4,000 subsidy when a person trades in a clunker for a new car that gets better gas mileage.

Congress set aside $1 billion to fund the program. If all of that money was going to pay these subsidies, there would be enough money to pay for 250,000 clunkers.

The program went into place on July 24th. One week later, the program was said to be out of money.

In 2006, before the current ills of the automakers, the average number of new cars sold in a week in the United States was 125,000.

So if you believe the numbers, sales involving clunkers as trade-ins last week represented more than two times the weekly sales of new vehicles when the industry was healthy.

Maybe that is possible, but something just does not smell right to me, especially because at the start of the week no one seemed to be worried that the Clunkers program would run out of money (especially not me!), so there was no reason to rush out and take advantage of it.

It didn't cross my mind to question the "news" about this program and the numbers. But Steven Levitt is famous for uncovering cheating in Bush's mandated uniform testing to assess schools & teaching. (Read about it in his book Freakonomics.) So he already has shown a kind of "detective's curiosity" about facts that the rest of us take for granted.