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Friday, August 7, 2009

Defending Cash for Clunkers

"While on the surface the program may be seen as an economic stimulus initiative at work, no one should be fooled into believing that this is a carefully designed, long-term strategic answer to the worst economic contraction to occur in the United States since the Great Depression. And most notably, the supposedly strong response to the program actually betrays its supercilious essence. For one thing, four of the the five most popular cars being purchased under "cash for clunkers" are foreign brands, meaning the impact on the domestic auto industry is minor at best."

First, no one ever said it was a 'long-term strategic answer' to anything. Economic stimulus, by its very nature, is a short-term issue. And cash for clunkers is but one part of this 'answer.'

Second, the most popular vehicle being purchased is a Ford. Additionally, helping Honda and Toyota helps their suppliers, who are often some of the same suppliers of GM, Ford, etc.... Further, there are myriad Honda and Toyota plants in the US - and they hire Americans. Finally, the 'stimulus' of this program is not just the initial purchase of the vehicles, but the subsequent spending that occurs.

6 comments:

sparc5 said...

What is your position on the "Buy American" clause in the stimulus?

Garth A Brazelton said...

I have mixed feelings. I understand the reason for it - to make sure the spending multipliers are multiplied on US production and not production over seas. I do believe there is a provision of the clause that says if buying American causes harm to the buyer or otherwise would be significantly more costly than buying elsewhere, then producers can be excluded from the clause. Further, in a recession like this where much capacity is being made idle, I don't think there would necessarily be huge price pressures. Generally I'm not in favor of those kinds of clauses, but in this case I'd probably think the benefits outweigh the costs. IE, the reduction in economic growth from any buy-America protectionism would be minimal, and the benefit to ensure that American companies and American jobs are created from American dollars seems to outweigh the cost.

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