Sorry for the abscence, readers. I decided I needed a vacation, and went to visit some of our nations illustrious national parks. There are units in all states (except deleware) and you should really check some out. I have throughly enjoyed all of the one’s I have visited. Back to business.
After continually hearing about the C.A.R.S. prgoram (if you are not familiar, you can check my previous post here) I decided to look into it further. As im of the younger persuasion, the amount of debt that the federal government has is staggering, and at some point, it’s got to hit the fan and the debt has to be paid back. So, after watching congress appropriate the money for the program and expect it to last until november (it ran out in the first week). I was curious as to what they would do. Well, they had no difficulty trippling the size of the program, from a total of 1 billion to 3 billion.
After laying out a large amount of money, Im understanding that the government was to reimburse the dealers within 10 days of recieving an old car, but has not been that quick. A Denver, CO (Planet Honda) dealer had sold ~150 cars, and has been reimbursed for a whopping 2! Dealers in maryland are also reporting slow reimbursements!
So, is this finacially sustainable?
The program has been working, in the sense that cars are being sold, loans are most likely being generated for these cars, and sales taxes are flowing into local and state coffers. So, in that sense, the program is having an immediate effect in that reguard. But I think it’s fairly safe to assume that when the funding for this program runs out, the sales will probably drop a bit, if not completely fall off. So the question remains: Will this be sufficient economic activity to repay the 3 billion in the long run?
One thing that I think people are failing to consider with the program is that the federal government is protecting its investment. The government is a majority owner of 2 car companies at this moment (General Motors and Chrysler/Fiat), and is using the immense power that they wield (in the form of tax rebates) to stimulate sales for their investments. I recall talking to a friend before the takeovers were official, but looking iminent, and I told him that if they do end up taking ownership, they should stack the deck in their favor by offering some sort of rebate or stimulate to get consumers to buy cars that are made by government controlled companies.
The practice is obviously not sustainable on a long term level, but the economic spill overs could push this program into the positive returns on the budget by keeping workers employed, instilling some confidence that the economy will rebound (dashed by todays reports of housing starts and producer prices falling), and driving sales back into state coffers. This also stimulates numerous suppliers for the auto industry, providing work for many hard hit areas in the midwest.
So, to boil it all down, the money has already been spent, and I think that it will provide a positive return if all economic spillovers are considered, if they are’nt, the program has no chance.
UPDATE: CNN Money is reporting GM Is hiring back 1,350 workers and keeping plants open longer. View the article here
One last point reguarding the program and the stimulus bill overall. Is the federal government sending the correct message to the consumer? The message of spending while broke? Isnt that what has drove us to this point in the first place?
There are many states that have a budget deficit, and all are cutting budget. Even Wyoming, which has been running large surpluses, has seen a drop in revenue, and the governor warned all state agencies to prepare for 5-10% budget cuts across the board. Wyoming could be choosing to spend some of it’s surplus to stimulate the economy, but has instead chosen to save the surplus it currently has.
if you would like some further reading on the state budget crisis there’s some economic articles from the new york times that make valid points reguarding budgets of red and blue states (this will lead to another post)
- Ross Douhat’s Original article, linking blue states and deficets during a recession is here
- Rebuttals to the arguement (and ensuing comments) can be found on Paul Krugman’s Blog here and in the economix blog here