The "cash for clunkers" program, once thought to be a minor, symbolic effort to stimulate the U.S. economy, actually may end up being substantive. The program, which is designed to give rebates to enable citizens to trade in older vehicles for more fuel-efficient models, thus stimulating auto sales and the economy, ran out of its limited $1 billion allocation Congress approved earlier this year. So the U.S. House moved quickly last Friday to approve an additional $2 billion for the popular plan. Look for the Senate to follow, although the new proposal may be modified.
If the senators, some of whom think the program is too generous, fail to expand the program, that would represent a loss for both the economy and the domestic auto sector.
The downside of the rebate program is that, in theory, it takes autos that consumers would have purchased later and brings them forward to today, thus hurting future sales.
However, the benefit is larger: if the plan reaches a critical mass, it can serve as another 'mini engine of growth' for the U.S. economy, and the point is that the U.S. should not quibble about engines of growth. So many jobs have been lost and so much purchasing power has been taken out of the economy during the recession that the U.S. economy needs all the demand it can get, and a program that encourages car trade-ins is one.
In fact, ideally, the program should be increased to at least $1 billion per month, or $12 billion. An even better plan would allocate $15-20 billion. Assuming citizens took advantage of the program, a $12-15 billion rebate program would move the U.S. GDP needle in a positive direction and have other spin-off effects.
Don't look for Congress to expand the program by that much, but if the legislative body did the nation's economy and manufacturing sector would benefit in a big way.
Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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Reader Comments (Page 1 of 1)
8-03-2009 @ 11:34AM
tom hornbuckle said...
Why not just have a 200 billion dollar program and really jump-start the economy? Or just "give" everyone a million dollars?
8-03-2009 @ 2:45PM
Will said...
Are you kidding me? Really? This makes no sense at all. Joseph, your a Financail editor, we already gave the auto industry billions directly, now you want to give them billions more?
Our country is heading in the wrong direction. All this bailout money handed out isnt helping. The weak needed to be replaced, either by bankruptcy or buyouts etc. Incompetence has to be given a pink slip. We have to find a way where the playing field is leveled. Tariffs on products made elswhere coming into our country. I think this Fair Trade Deal passed years ago has crushed the American peoples ability to make a decent living. When you have other countries making products at a wage FAR LESS than what is acceptable, and then these countries do not want to manufacture by FAIR Enviromental rules we will be unable to compete and prosper as a nation.
Handing out FREE money is not the answer, tastes good, feels good right now, big picture its going to hurt us.