The "Debunk" - Episode I, Cash for Clunkers

While cleaning out my inbox (from the last few years), I ran across several emails of the chain variety. Being a Texas resident, I tend to randomly get ideological emails with which I generally don't agree. The subject of this one was the CARS program (Cash for Clunkers program) from 2009. Lots of conservatives I know have legitimate beefs with liberals and President Obama, but they tend to expand their disapproval to all the facets of the democrats policies. Now, I'm a socially liberal, fiscally conservative individual, and I generally side with liberals in elections while agreeing with facets of conservative doctrine. I genuinely thought "cash for clunkers" was a good program for both the economy and the environment. I've pasted the body of the email below, so give it a read. Then I'll go through it again with comments....

"Subject: Democrats Cash for Clunkers Program

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.

A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.

They claim 700,000 vehicles exchanged in the Cash for Clunkers program – so that's 224 million gallons / year.

That equates to a bit over 5 million barrels of oil.

5 million barrels of oil is about ¼ of one day's US consumption.

And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.

So, we all contributed to spending $3 billion to save $350 million.

How good a deal was that ???"

Gotta love these "one sided uses of math to prove how stupid President Obama is," numbers don't lie, right? Wrong. They lie when you use the wrong numbers. I'll go through this again with some comments to the thought process....

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.

12 000 / 15 = 800 gallons, fine with me.

A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

12 000 / 25 = 480, this is already looking pretty good.

So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.

800 - 480 = 320, nice. And that's per program participant. So when gas costs $2.50/gal that's a savings of $800/year.

They claim 700,000 vehicles exchanged in the Cash for Clunkers program – so that's 224 million gallons / year.

And 320 x 700 000 = 224 000 000 gallons saved. Just FYI, that's a lot of gas.

That equates to a bit over 5 million barrels of oil.

There is a non-negligible math error here, 224 000 000 / 42 = 5 333 333.33 barrels of oil, as there are 42 US gallons per barrel. That equates to a difference of 6.249%, which while you're working in absolutes as this emailer does, turns out to be significant later.

5 million barrels of oil is about ¼ of one day's US consumption.

According to the US Energy Administration, the US uses 18 771 000 barrels/day. So that is 28.4% of our daily consumption saved per year. But for arguments sake, sure, I can agree that it's about 25% of our daily consumption. This is really a statistic showing exactly how much gas we use.

18 771 000 x 365 = 6 851 415 000 (That's almost 7 billion barrels/year, ~ 290 billion gallons)

So the 5 333 333 barrels we save each year is only 0.07% less than our annual usage. But this email is about money, so we'll stick to that.

Fig. 1 - US Oil Consumption, US Energy Information Administration (http://www.eia.doe.gov/)

And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.

5 000 000 x 75 = 375 000 000 (Error of 6.6%, and if you're keeping track, that's a compound error of more than 12% already). We've already established that its actually 5 333 333 barrels, and $75/barrel is a ridiculously conservative price for petrol. When I originally read this email it was about $79, and today its quoted at $91 on the stock market. So I'll do some easy math here:

Fig. 2 - From CNNMoney Stock Ticker on Dec. 28, 2010

5 333 333 x 75 = 399 999 975 (for simplicity, that's $400 million), or an error of 12.5% to their own math.

5 333 333 x 79 = 421 333 307, or an error of 17.8% (!) for the 2009 math. I won't do the 2010 ($90/barrel) calculation, since this was done for 2009, but that number will make itself apparent again later.

So, we all contributed to spending $3 billion to save $350 million.

This is where things get stupid and short-sighted. Using that logic, this does seem like a bum deal and exactly the conclusion the original author of the email wanted you to reach. "What? We spent $3 billion to save $350 million? Stupid Obama!" When in reality we are looking at a yearly savings of $420 million dollars. While that still seems like a drop in the bucket compared with $3 billion, the "long term" is not taken into account here. Saving $420 million dollars/year is a lot. That means we will make back that $3 billion in savings over the next 7.14 years, and every year after that the $420 million becomes flat savings.

How good a deal was that ???

A great deal. Considering that oil is already up to $90/barrel, and is speculated to continue to climb to as much as $5/gallon, saving $420 million/year is actually a conservative number. The initial $3 billion investment will only get returned sooner than expected with increased gas prices

5 333 333 x 75 = 375 000 000 (email authors conservative 2009 values)

5 333 333 x 90 = 480 000 000 (my 2010 values)

480 000 000 - 375 000 000 = 105 000 000 (increased savings in dollars from 2009 to 2010)

The math above shows that every year the savings increase by more than $100 million should oil prices keep increasing.

This is just one example of the little annoyances I get every now and again. Best I can tell, this conservative email has been properly thrashed. Go back to crying over a non-existent Kenyan birth certificate, jackass.