Why I Like the "Cash for Clunkers" Plan

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As a free-market capitalist who does not 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.

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 the car-dealer showrooms, the ones who cannot 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 may 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 number-three trade, the Honda Civic, is made in Indiana, while the Dodge Caliber and Chevrolet Cobalt rank in the top ten.

Yes, as for the Chevy, it is a little bizarre that the government that owns General Motors 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 will hopefully 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 Obama would have gone to a six- or twelve-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 workforce.

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

Larry Kudlow is a senior contributor at CNBC, and also co-author with Brian Domitrovic of the new book JFK and the Reagan Revolution: A Secret History of American Prosperity.  

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