If the term “cash for clunkers” festooning just about every news website, TV programme and newspaper is starting to drive you mad, think again.
Not since before the financial crisis has a chunk of US government spending been ushered through with so little opposition, and as Democratic senator Debbie Stabenow remarked on Thursday, the scheme must rank as the “single most effective stimulus plan to date.”
The US Senate on Thursday night approved the provision of another $2bn for the “cash for clunkers” auto-purchase subsidy scheme, extending the plan through August. Senators voted 60 to 37 to continue the programme after it quickly burned through its initial allocation of $1bn. That first allocation had been expected to generate about 250,000 vehicle sales and last until November. In fact, the US Transportation Department said Wednesday that more than 180,000 deals had been submitted, with a rebate value of $775.2m, since the scheme began in mid-May.
President Barack Obama is expected to sign the bill as soon as possible. As the New York Times reports, the House approved the additional $2bn last Friday, before its summer recess, handing the Senate a “take-it-or-leave-it” proposition because if any changes were made, it would have forced a suspension in the auto discounts until September, when the House returns from a month-long recess.
Under the scheme, customers trading in a vehicle for one with more miles-per-gallon can qualify for a government subsidy of up to $4,500. The plan touched off frenzied debate when it was introduced but has since met with broad popular approval – and has been lauded for hugely boosting sales of both used and new vehicles, leaving some Republican critics of the scheme in a small and curmudgeonly-sounding minority.
“I just continue to believe it sends a signal that the federal government would support any kind of cash for fill-in-the-blank,” said Mike Johanns, a Republican from Nebraska.
In that critical spirit, and oddly, for a rare government scheme that has met so much (relative) success and popular support, the majority of media commentators have come out swinging against the ‘clunkers’ scheme.
Troy Senik at RealClearMarkets calls it “cash for the clueless“, and says it’s “little more than corporate welfare with a soft candy centre”:…Dealers may love the added traffic on their lots and buyers may delight at how much cheaper that new car smell comes these days. But every American who is not a part of that binary equation is left holding the bag for what will probably amount to $3bn in new debt. That the Obama Administration has correctly calculated that the public has grown numb to the number of zeroes that follow the dollar sign says less about the White House than it does about the body politic.
Meanwhile, Vincent Fernando at Research Reloaded cites the “broken window fallacy” raised by Bloomberg columnist Caroline Baum, to argue that the Clunkers programme is “simply using a part of its productive energy to go and destroy productive assets”:While luckily a drop in the bucket, it is actually destroying value, perversely with the intent of helping out during an economic downturn. Bloomberg columnist Caroline Baum makes a great reference to the Broken Window Fallacy, and is right on the money.
Meanwhile Rick Newman at USNews.com’s Flow Chart column has four main reasons why the government rebate-fuelled auto buying spree may not be quite the economic boost it appears to be on the surface – and why “there will probably be some of those pesky unintended consequences”.
But among the scheme’s defenders in the media, RealClearMarket’s Larry Kudlow makes a valid point, concluding:
In virtually no time, the clunker program has become a national pastime. It has captured the public’s imagination in a way that no other federal stimulus has. Everyone is talking about it. And I truly believe that consumer spirits have been buoyed by the prospect of going out and buying a new car — even with federal assistance, and even under the duress of federal mileage standards.
After a very dreary year or two, people might just have fun trading in their clunkers and buying something new. Even today, as unfashionable as it sounds, and given Washington’s attack on horsepower, Americans are still in love with automobiles.
Now, I wouldn’t want the government to pass out free money for everything. But in this particular case, the cash-for-clunkers rebate program is working. It’s working so well that it’s running way ahead of the computers that are administering it at the Transportation Department and Citibank.
Well, sure. That’s government for you. But unlike most of the rest of the fiscal-stimulus plan, this program actually works because the federal cash rebate actually contributes to a consumer purchase. It’s not just another welfare-type transfer program.
Related links:
Congress sends Obama $2bn measure to boost ‘Clunkers’ – Bloomberg
Senate adds cash to ‘clunkers’ plan – NYT
Finding hope in cash-for-clunker country – DealJournal