Monday, August 10, 2009

Cash For Clunkers: The Best Stimulus So Far

I'm outraged at the outrage. Government is spending pitiful 3 billion dollars, which is not even a blimp on the total stimulus money and return is huge. Auto sales are way up, program is widely popular. People are spending money, banks increase lending, gas hogs are replaces with more efficient vehicles.

Let's compare to other stimulus packages.

Consumer stimulus package of 2008: 146 billion. Result: consumers paid off some debt (i.e. no stimulus).

AIG bailout: 150 billion and counting. Some of it probably will come back, but dozens of billions are lost.

Farm welfare packages: hundreds of billions every year. Hard to say exact numbers, they are changing all the time. Results: overproduction of some goods (milk, for example), inefficient production (sugar), waste of resources.

Energy packages (ethanol and organic diesel): hundreds of billion every year, complete waste of money, higher prices of agricultural products, environmental harm caused by more land used for intensive farming.

This list can be continued. Of all other stimulus packages, only bailout of banks made sense, and this money will be returned, most probably with big interest. And Cash for Clunkers is much more efficient than any of them. It does what stimulus should do: increase customer spending, when financing only part of this spending. I think 3 billion is not enough, maybe even 10 would not be enough. Make it 20, help people to spend, help auto industry, help local dealers, help economy.

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