Cash for Clunkers -- And Patience

A short time ago, the government approved an additional $2 billion for the 'Cash for Clunkers' program. For those that don't know what that is, basically it is a federally funded program where if you trade-in a qualifying car (cars that get very lousy gas mileage and have excessive miles on them) then you get a credit for the car up to $4,500. The program was initially set around $1 billion but seeing at how successful it has been in stimulating car buying in recent days the additional funds were sought to keep up with demand. Now opponents to the plan call it a waste. Others claim that it is again a government stimulus plan that will put us deeper in debt and isn't doing anything to help the economy but I choose to argue the opposite. And as I mentioned in my blog yesterday, here's my rationale for why.

During the closing days of his second term, President Bush had authorized economic stimulus checks of up to around $700 per person (who qualified) in order to 'entice them' into spending the money and thereby providing a 'shock' to the economy to get it going on the road to recovery. Unfortunately there wasn't much 'shock' to the system to get the money flowing in exactly the nature that many were expecting. Now most people have debt which they have to take care of. Home loans, student loans, car payments and credit card bills to name a few of the more common ones. That being the case, the idea that an additional $700 would suddenly spur spending seemed a bit silly to me then and it seems silly even now that $700 would make any difference regardless of your income level. And to me that was the main problem. The people coming up with this plan probably think that for someone earning about a third of what they do, $700 is pretty significant but it's not.

Rent on most major apartments in the Washington Metro area don't fall into this category and those that do are not in the best of areas. Regardless, I didn't qualify and so I didn't get one but if I had then I probably would have stuck it in the bank as most people did. A little extra saved away for a rainy day is never a bad idea. That said then why was there the assumption that suddenly people would be out shopping like there's no tomorrow? That was part of the reason we were in the situation we're in in the first place. So then what's the difference between what Bush tried and what Obama is attempting through his Cash for Clunkers program? He's providing enticement that has farther reaching benefits.

The way the first time homebuyer credit got people looking to buy homes again has gotten people buying more fuel efficient vehicles. Driving around I've seen signs pointing out that the credit for clunkers would mean a car costing around $15,000 could cost you $10,000 after the credit. So what right? Opponents say that there's no difference but there is. If you buy a more fuel efficient vehicle, you don't need to fill up your tank as often. If you're getting more miles to the gallon then you have to buy less fuel. If you buy less fuel that means fuel consumption goes down. If fuel consumption goes down then the price of oil should drop. If the price of oil drops then there's probably going to be a shock to the spending habits of people because if you're spending less on going from place to place then you can pay more for other things. After all, isn't breaking dependence on foreign oil exactly what everyone (Republicans and Democrats) have been calling for all along?

And what about the car dealers themselves. Well dealerships that were complaining of slowing sales for months are now complaining that they don't have enough cars on the lot to keep pace with demand. That being said then that means we need more inventory and if you need more inventory you need people to build the cars so you start re-opening factories rather than closing them. I know that some people will say that this is only temporary and that in the long run things will be back to where they are and perhaps they are right, but until consumer habits change a little bit we're still going to be in the same hole we've been digging ourselves into for years on end. If for example GM's new car concept the Chevy Volt does what it says then there could be a major change to the car industry. This electric-hybrid vehicle is reported to get nearly 230 miles per gallon in the city. If that's the case and we get credit for buying such a car we could see a major resurgence in the American car industry and a major impact on the oil industry. Wouldn't that be a good thing for those of us who don't have an electric hybrid? Paying less at the pump is something I would never mind doing.

I get tired of hearing arguments about how these programs don't work. We can't be naive and expect that as soon as money is approved that there will be a positive change within moments. This program contrasts Bush's because the effects will not be felt immediately but rather within the short term. It took time for car factories to close, it takes longer to open them again. It took some time for the program to gain some momentum but now that it's there, why try to slow it down? Everything takes time and patience. Patience is the one thing our society is beginning to lack. Or rather we're patient for certain things but not for others. We have patience when it comes to finding weapons of mass destruction in Iraq (we're still waiting by the way) but not when it comes to programs that have more tangible results. Patience! It is working and it will work.