Will Congress' 'cash for clunkers' boost U.S. GDP?

Posted Jun 11th 2009 4:30PM by Joseph Lazzaro
Filed under: Politics

The 'cash for-clunkers' cash payment is now likely to receive Congressional approval, something yours truly didn't think would occur six months ago.

Dueling versions of the bill that would grant a voucher worth $3,500-$4,500 to consumers who trade-in their gas-guzzling cars and trucks for more fuel-efficient vehicles are winding themselves through Congress. The House version passed 298-119, Bloomberg News reported. A vote on the Senate version is expected soon. In a nutshell, car purchases get $4,500 for a vehicle that improves mileage by at least 10 miles per gallon, $3,500 if the new vehicle ups mileage by at least four miles per gallon.

Typically, I'd favor a bill like the above, during a recession, on stimulus grounds, but this one has multiple trade-offs, so BloggingStocks distracted economist David H. Wang from his economic modeling for a moment to get his analysis of the potential stimulus program.

"On the one hand, it will stimulate demand for new vehicles. More people, perhaps as many as 2 million more people will buy a new car, motivated by the cash incentive," Wang said. "And it would increase overall U.S. fuel efficiency."

"On the other hand, what we do today will likely take away from consumption later. At least that has been the case with auto purchases," Wang said. "There also is the issue of delaying current sales, if the legislation does not pass soon. Tens of thousands of Americans are delaying a purchase, waiting for this bill, so I would advise Congress to definitively pass the bill or reject it, but don't let the issue linger unresolved."

Auto Sector/Economic Analysis: The view from here argues a universal rebate for all Americans over age 16 would stimulate U.S. GDP more, but in lieu of the above, Congress should approve the auto purchase subsidy.

Tags: autos, FuelEfficiency, inthenews, mpg

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Reader Comments (Page 1 of 1)

6-12-2009 @ 1:34AM

pnut166 said...

When will the madness end?!?!? So, MY TAX MONEY( Obama is treating spending like it comes out of a friggin well, not our pockets) has not only bought the incompetent company that made these gas hogs, but taxpayer money will also be used to buy them back for more than book value?!?!?! I don`t get anything but a royal screwing out of the deal, because I was frugal and responsible pre-Obama and already own compact cars. How about giving EVERYBODY who buys a new car a rebate - if the Govt is going to do something this GD stupid, at least make it fair to all who are footing the bill !

6-12-2009 @ 4:12AM

SaintStryfe said...

Am I alone in noticing the people who comment on this site are generally right-wing loons who rant-and-rave about THEIR tax money, like they're footing the billion dollar bill personally?

6-22-2009 @ 11:48AM

ROCK WEB MEDIA said...

I don't qualify because my car already gets good gas mileage. But my dad swears by the car buying process here:
http://excarsalesman.typepad.com

I have a feeling dealers are going to automatically increase prices because of the increased demand (artificial) for great MPG cars. So the thousands of savings from this bill for consumers is not entirely accurate.

With the price increase, I'm certain some markets you'll come out even as if they never offered this voucher. It is poorly written legislation.