Better Ways to Stimulate than “Cash for Clunkers”

President Obama recently signed a law adding $2 billion to the wildly popular “Cash for Clunkers” program that has given automakers a boost after months of declining sales. Barry Bosworth says despite the program’s quick uptake, there are probably better ways to help stimulate the economy.

Transcript

“This is a very good program if the only thing you care about is the automobile industry. It just seems that we spent a disproportionate amount of the country’s resources in trying to bailout the auto industry when there are lots of other people working in other industries that have also suffered severely as a result of the recession. It’s a very funny criteria. I think we want to use stimulus but, normally, when we started out six months ago the objective was to come up with programs that were broad and everybody would receive some benefit from – so the whole idea was targeted on need, otherwise everybody should get something. This is very much the opposite of that. This is a specific group of people who feel that they would like to buy a car right now but you also have to own a clunker in order to do it. That puts you in a funny classification. …”

“…When sales dropped (automobile dealers are a good example) there was a huge excess inventory. For the last six months businesses have been working off those excess inventories. They cut production way below sales and now they’re beginning to run out of inventory so production will have to step up this fall just to get back to the level that sales were at. So there’s that sort of inventory cycle and in consumer durables, in particular, I think people postponed things for the last year. Well, ultimately, your car begins to wear out and things, so you will see some people in consumer durables coming back into the market because you can’t delay purchases forever. That would be the second thing that I think turns around. Third – the government stimulus money has been very slow to come home but I think as we look at the last half of the year it looks like, particularly in the area of public works, a lot of these projects are now getting going. And I think that if people just drive around they will observe there is a lot of paving of roads going on at the present time. So the public spending will pick up now in the third and fourth quarter of the year and that will be another stimulus. Finally then, I think the whole financial system situation has stabilized. I don’t think there’s a lot of lending going on but the panic is over.”