I’m excited for the phrase Cash for Clunkers to go away. I want it to rest snugly between Shock and Awe and Wall Street vs Main Street in the cliche graveyard. If nothing else, I want to make sure it is nowhere near WAAAASSSSSSUUUUUP. But I digress. I was a big fan of Cash for Clunkers for a few different reasons, but I feel that there are going to be nasty side effects.
But first, here’s why I liked it. The stimulus money that was supposed to…well…stimulate the economy was wasting away doing nothing until Cash for Clunkers came along. I know that it is hard to believe that the government struggled at spending money, but in fact, spending money to stimulate the economy is challenging. There is what the insiders like to call “red tape” (I’m kidding of course, everybody calls it that. I was watching a crappy news program last night, and the host said the phrase “what the insiders like to call inflation”. This was possibly the stupidest thing that I had ever heard, and I vowed to use it in a post). Anyway, Cash for Clunkers cut through the spending red tape. Although there was plenty of red tape involved with Cash for Clunkers, just ask a car dealer.
Another reason that I liked Cash for Clunkers is that it spurred the debate about buying American. Hear me out. I have never understood the concept of buying a domestic car in lieu of an import. The argument for buying American is: we need to keep money in America, and quit supporting “the other side”. There are some major flaws in this line of thinking. First of all, there are Toyota and Honda plants all over the US that employ thousands of Americans (our neighbors). Second, there are thousands of Toyota and Honda dealerships all over the nation that also employ thousands of Americans (our neighbors). Therefore, I am not going to discriminate between providing a living for one of my neighbors vs another.
Okay. Here is why clunkers is jacked up. Eric Halovrson, the local CBS anchor on 24 Hour News 8, recently interviewed me for his blog post. This is what he wrote that I said (yes, I’m a terrible writer):
Clunkers messed with the natural cycle of supply and demand. Supply and demand will find its balance, therefore there will be a huge period of depressed demand.
On the flipside (per your question) There has been a decrease in the supply of peoples’ disposable income. Therefore the natural balance will be found. That means they will be forced to spend less over the holidays, or they will increase their debt. Either result is an indirect side effect of cash for clunkers.
Have you ever considered the implications of messing with natural demand? It’s like poking a sleeping bear with a sausage (don’t ask). Anyway, I agree with what Eric said that I said. I think that makes a majority. No.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.