Larry Kudlow: Vote for the Clunkers

The car-rebate program has buoyed Americans' spirits in giving them a good bang for the buck

By Larry Kudlow | Published on 08.05.2009

As a free-market capitalist who doesn’t believe in artificial spending and pump-priming from Uncle Sam, I’m going to eat a little crow with the following statement: At this moment in history, if we’re going to use fiscal stimulus as Washington insists, I favor extending the cash-for-clunkers car-rebate program.

Larry Kudlow

With the greatest respect for my conservative friends and colleagues who totally disagree with me, here’s why.

In virtually no time, the clunker program has become a national pastime. It has captured the public’s imagination in a way that no other federal stimulus has. Everyone is talking about it. And I truly believe that consumer spirits have been buoyed by the prospect of going out and buying a new car — even with federal assistance, and even under the duress of federal mileage standards.

After a very dreary year or two, people might just have fun trading in their clunkers and buying something new.

Even today, as unfashionable as it sounds, and given Washington’s attack on horsepower, Americans are still in love with automobiles. They still like going to showrooms, checking out the new models, inhaling the great new-car smell and, yes, kicking the tires and making a buy. Cars may no longer be the heart of our economy — that’s all techie, information gadgets now. But folks still love the car thing.

Now, I wouldn’t want the government to pass out free money for everything. But in this particular case, the cash-for-clunkers rebate program is working. It’s working so well that it’s running way ahead of the computers that are administering it at the Transportation Department and Citibank.

Well, sure. That’s government for you. But unlike most of the rest of the fiscal-stimulus plan, this program actually works because the federal cash rebate actually contributes to a consumer purchase. It’s not just another welfare-type transfer program.

Incidentally, with all those people rushing into dealer showrooms, the ones who can’t afford new cars are buying used cars. Used car prices are up substantially this year, a healthy sign for the entire auto business.

And carmakers are going to have to ramp-up production in order to meet the clunker trade-in demand, which could well mean better employment — something we desperately need. Plus, in addition to fueling better job creation and higher incomes, this process could generate rising tax revenues from the sale of the cars.

And the price tag of the program is a mere $2 billion compared with the trillions of dollars Washington has been wasting. So, for once in our lives, Washington spending is giving us a good bang for the buck.

The biggest trade out there seems to be selling the Ford Explorer and buying the Ford Focus. Of the top-five-purchased higher-mileage cars that qualify, Toyota has three — the Corolla, Prius and Camry. The Prius is made overseas, but the other two are manufactured mostly in the United States. The No. 3 trade, the Honda Civic, is made in Indiana, while the Dodge Caliber and Chevrolet Cobalt rank in the top 10.

Yes, as for the Chevy, it is a little bizarre that the government that owns General Motors Corp. is in effect paying itself. So it goes. It ain’t perfect.

And yes, it’s quite possible that government rebates today will steal car sales from next year. But let’s cross that bridge next year when the bull market recovery hopefully will be stronger.

Right about now you’re probably saying, “Well, why not just spend another $100 billion and give consumers checks for everything?” Or, “Why not spend another trillion?” Well, I don’t want to go there. Just this one cash-for-clunker program — that’s all I want. Fund it again for a couple of billion dollars more.

I mean, look, if I had my way, that trillion-dollar stimulus plan from President Barack Obama would have gone to a six- or 12-month tax holiday for everyone. But alas, that’s not how the political ball bounced. At least for the clunkers, there’s a plan that has caught the public’s imagination and makes for a reasonable amount of economic success.

So I invite my Republican friends in the Senate and my conservative friends everywhere to push for the clunkers.

Ralph Waldo Emerson once said, “A foolish consistency is the hobgoblin of little minds.” So I acknowledge that I am not being consistent. But I do actually believe that the new bull market in stocks and the onset of economic recovery will both be helped by improved consumer spirits, better car sales and maybe even a new job or two for the American work force.

And now I will try to regroup and go back to being a pure free-market-capitalist supply-sider.

— Larry Kudlow is the founder and CEO of Kudlow & Co. LLC, an economic research and consulting firm in New York City, and host of CNBC’s Kudlow & Company. Click here for more information, or click here to contact him.

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» rtetz on 08.06.09 @ 10:31 AM

Sorry Larry, but the cash came from someone else, not the government. Maybe that someone else would have liked a new car too but now can’t afford it after paying their taxes. But,hey, it’s only a couple of billion dollars.

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» Allan Ghitterman on 08.06.09 @ 05:54 PM

I can not believe that I would support anything that Mr. Kudlow writes or says since my respect for his opinions is minimal but he states the obvious here and these are cogent observations on his part.
Does it matter where the money came from? The purpose is to provide jobs and as a by product, we help the environment. The short sighted view is to quibble where the money came from,whereas the important aspect is where is it going and what will it do when it gets there.
It provides jobs, not only car salespersons but also mechanics, suppliers to the auto sales industry either by manufacturing or support groups. The satellite industry that exists also benefits which in turn creates jobs in that direction, as well.
All this activity generates income because of the ripple effect. An extra benefit is that the income generated by all this activity creates taxable income which in turn comes back to the government, so the net cost is minimal.
But the key is that something is being done to move the economy forward, without the contribution that a tax reduction is supposed to provide. An aside, nobody has shown that reducing taxes creates jobs, but it surely preserves wealth without benefiting the population at large. Hey, greed still lives and among Mr. Kudlows friends is a common characteristic.

But if anyone with an ounce of vision could see it is evident that there is an major parallel facet to this program, to wit, the income earned by these expenditures will pay income tax, and since the money will rotate thru several hands, we collect taxes from each wage earner, effectively providing most of the money which when accounted for, reduces the cost to the taxpayer.
However, I must point out that a tax holiday is an impractical idea, nobody has shown that that does anything for the economy, except enrich those with money. To believe otherwise indicates either naivete or greed.

Would that all government programs be as efficient.

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» tonyP4 on 08.06.09 @ 07:27 PM

A Nation of No Losers

We do not let you be a loser!
Your mistakes will be rewarded handsomely.

When you bought clunkers that you should not have, we give you $4,000.
When you had mortgage that you cannot afford, we’re going to bail you out.

When you lose your job, we extend your benefit.

When you do not have saving, we give you free health care.
When you have saving or a job, we take away your health care.

Teenagers, the more babies you have, the more benefits you have.
Drunk drivers, no one will prosecute you as the entire jury are drunk.

All athletes are rewarded with millions for taking drugs.
We do not allow foreign athletes doing same.
It is an America invention!

No other country lets their citizens own guns.
NRA and his puppet politicians will give you millions of funny ‘reasons’.

When any company fails, we bail it out.
The executives are rewarded with bailout money for bringing down a company.

We need you to vote and re-elect us in 4 years.
The children cannot vote today, so let’s pass our debts to them.

We can pass all the blames to the evil Chinese.
Why you provide us with so low-cost products?
Why you lend us so much easy money?
Why you guys work for peanuts?
Why your kids study so hard?

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