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Tuesday, August 25, 2009

Clunker Program Confusion

From Gary Becker:
"To be sure, some cars would be purchased under the program that would not have occurred during the next 18 months, if at all. But if the goal of the program is to help stimulate the economy by subsidizing consumer spending, why limit it to individuals who own old cars? Why not give vouchers to all consumers that they can spend for a limited time period on many durable goods, such as computers, printers, TV sets, washing machines, and refrigerators? If that seems like too obvious a straight handout, the government could require consumers to turn in old computers or other durable goods in exchange for new ones. Of course, as with the cash-for car clunkers subsidy, many consumers under this more general clunker program would simply alter when they purchased the new durables to take advantage of the subsidy. The net result would again be subsidies that produced little net increase in spending."

First off, kudos to Dr. Becker for completely doing a 180 within the span of a paragraph. I don't buy the argument that this is just simply shifting consumption up a couple months. Regardless, even if this does just shift SOME consumption up a few months or a couple years - it's still stimulus NOW isn't it? We all know crowding out is a factor in the long-run regardless of how/why that crowding out occurs (though I would disagree on how much of a factor it is with Gary Becker given the slack in capacity utilization/demand). I do agree though, that if the government truly supported the program, the program should have been broadened. And I agree that the administration of the program has been a train wreck.

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