The economic term “durable good” denotes something that will be useful for multiple (usually at least 3) years. The canonical examples are appliances, cars, and industrial equipment (tractors, factory machines). Because durable goods tend to be something expensive that is paid off over a period of years, consumers tend to spend a while researching the good and waiting for the right time to buy it.

So what happens when you offer a short-term, multi-thousand dollar incentive to purchase a new durable good, as the FedGov did with Cash for Clunkers? People shift their buying forward by buying sooner rather than later. So although a ton of cars were bought under the program, an estimated 45% of those cars would have been bought anyway (which works out to a billion dollars of wasted incentives).

Check out page 28 of that PDF for the graph of the new car sales, and note the jump during Cash for Clunkers and the immediately following fall. And then note that the graph is on a log scale.

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