Clunkers and Junkers Stimulate the Economy

While the American Recovery & Reinvestment Act of 2009 (ARRA) which needed to be passed in a hurry 6 months ago remains over 90% unspent and non-stimulating, the Cars Allowance Rebate System (CARS) program funding was spent in its first week.
http://www.cars.gov/


The Cash for Clunkers initiative has two things going for it that the rest of the stimulus package lacks.
1) Individuals and Small Businesses are making the spending decision. Anyone who had been looking at replacing an older vehicle with a newer one has an economic incentive to do so
(... as long as the existing vehicle qualifies and the new vehicles is at least 4 MPG more fuel efficient.)
I am kind of sorry that I own two older fuel efficient Honda Accords as neither one qualifies as a clunker.
2) There is excess inventory in the automotive industry and the dealers are incented to move the inventory off the lots and thus they are willing to front the money and handle the cumbersome paperwork needed to process the rebate.

When incentives whether they are rebates, vouchers or tax credits are given directly to individuals and small business they will quickly move to take advantage of the underlying economic value unlike bloated bureaucracies and the politicians, lobbyists and layers of red tape.

If the rebates of $3500 to $4500 had been smaller, there is no doubt that the program would be generating less demand. This is a classic micro economic price-demand curve in action.

There have been problems galore with the CARS program this week in spite of its success. The web-site crashed, the program ran out of money, deals that were done had to be undone and then many were redone. None of those problems were created by the individuals or small businesses doing their best to stimulate the economy and reduce their carbon footprint.

The problems in the program thus far, all lie with Congress and the Federal bureaucracy that is neither quick, efficient or nimble at delivering a simple rebate.

It is time to rethink the ARRA of 2009 and kill any spending which does not occur in the 12 months and also eliminate wasteful non-stimulus pork. Maybe the remaining $500 million could be best spent by individuals and small business.

It is also time to rethink how the government will provide health care to the poor and working poor. With vouchers or rebates or tax credits it is possible that individuals and families can find adequate health care directly from a physician.