Friday, November 27, 2009

Because it worked so well last time 

Did you like Cash for Clunkers? The government is planning an encore.

On the heels of its ballyhooed "Cash for Clunkers" program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza, known as "Cash for Appliances."

Supported by $300 million from the economic stimulus, the program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace their older models.

And like the $3 billion cars program that gave consumers money for swapping their clunkers for more fuel-efficient rides, the appliance initiative seems destined to inspire shoppers, drive up sales for a while and profoundly divide economists over how much lasting good this chunk of government spending will do for the economy.

"The premise seems to be that for Americans to be richer, they need to throw out their old appliances faster -- I don't see it that way," said James D. Hamilton, an economics professor at the University of California at San Diego, who has blogged about the clunkers rebates. "I don't like the idea of just spending money for its own sake."

The government admits in this article that more than half of the cars purchased in C4C was money expended on trade-ins that would have happened without the program. For $3 billion it got 330,000 cars purchased that would not otherwise have been, according the Obama Administration's Council of Economic Advisers. The other 360,000 vouchers cashed were either cars delayed from June, those that would have been bought in July and August, or those pulled forward a few months. This was just a transfer from all taxpayers to those lucky enough to have their car purchases happening around the time of the program. The same will be true for appliances. Many sales will be for homes purchased under the government's homebuyer tax credit: A major determinant of appliance sales is home sales. Those people already induced into buying an existing house with appliances they would have replaced are going to get another gift.

Details on the program are here. One more effect will be that those who planned to buy these items now are being incentivized to wait for the rebate program to kick in. That plus continued decline of consumer credit may make holiday season shopping a little less merry.