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For Good or Bad, the Stimulus is Helping…Go Clunkers!
August 1, 2009 by David Feldman · 2 Comments
I am not the biggest fan of the roughly $800 billion stimulus package, for a variety of reason. Too much of it is in out years when the economy might be humming along. Some felt big chunks of the stimulus were really disguised efforts at forwarding the President’s (or House Speaker Pelosi’s) social agenda. Others have complained too much of the money is going to Democratic “blue” states (who ever assigned red to Republicans anyway?). Others feel it’s better to stimulate through tax cuts, putting more money back in the hands of consumers (though with the savings rate growing so rapidly, that might not have been as effective these days, to be honest). And of course everyone realizes that it is going to dramatically increase the country’s debt load, and runs a risk of causing inflation.
But it was eventually going to help. According to the lastest GDP numbers, about 20% of the difference between the 6.4% decrease in GDP in the first quarter and the roughly 1% annualized decrease in the second quarter is due to the stimulus money. So that’s pretty good, I guess. All the numbers are going in the right direction. For now.
Also, here’s one part of the stimulus I like. The slightly controversal “cash for clunkers” program. Bring your old gas guzzler in and as long as you go down at least 10 mpg in your new purchase you get up to $4500 off. Right now. Some dealers are matching that for a total $9000, which is pretty big! And yes we are all for every effort to reduce greenhouse emissions. The $1 billion authorized was used up in less than a week. I hope Congress reinstates the extra $2 billion they are contemplating and maybe even more.
There are stories of problems. Dealers who send in the massive paperwork for reimbursement getting rejected three times. Dealers who are supposed to destroy the cars in two days taking the parts or secretly trying to resell them. The slight panic as the program ran out of money. But this is a good one. It has immediate positive impact on a significantly beleaguered and critical part of our economy. There has never been this much rapid growth since the zero interest loans were started after the September 11 terrorist attacks to jumpstart sales. Hopefully this will do nothing to dissuade the US automakers from retooling their strategy, building cars more suited for the American taste today, and maybe work harder to overtake the Japanese and other foreign manufacturers.
So as to things now, the stimulus is here, so at least it’s good to know it’s doing some good.
I have to disagree, Mr. Feldman. I think the cash for clunkers program, at least the way it is being implemented, is a poor idea. The part I find disturbing is that the dealer must destroy the car. There are so many people out there (including myself) who could use a 2nd car or even a first car, yet don’t have the money to purchase one. This would be the perfect way. We’re taking perfectly good cars (taking away some environmental concerns) and throwing them away? I suspect this program will cause more debt among people that they or the economy can’t handle.
Gary, I agree with your point. But if you assume the cars are worth less than the $4,500 people are getting, the key is that this is a direct and immediate stimulus that has nice multiplier effects. And I am not an extreme environmentalist, but I do wish we could all get reliable, inexpensive electric cars and help end our dependence on foreign oil, in addition to helping the environment. If that means destroying some vehicles that hurt the environment and probably wouldn’t last much longer anyway, I think that’s a fair trade-off. I don’t think it will mean you will never be able to buy a reasonably priced used car. Some people will not be able to qualify either because the car they are selling doesn’t get bad enough mileage or the one they want to buy doesn’t get good enough mileage. I don’t think this will effect the used car market and there should be more than enough undestroyed clunkers out there.