Business.view: Clunky but effective | The Economist
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"Cash for Clunkers", known as the Car Allowance Rebate System (CARS) — is a federal program which was introduced by President Obama on June 24, 2009. This program aims to encourage consumers to trade in older, less fuel-efficient vehicles for new vehicles that get better fuel economy by providing a credit of either $3,500 or $4,500. The Cash for Clunkers program covers qualifying transactions that occur between July 1 and November 1, 2009.
The National Highway Traffic Safety Administration (NHTSA) was tasked with hashing out the details and implementing the Cash for Clunkers program.
The program divides cars, trucks, SUVs and vans into four categories, in most cases based on weight and length of their wheelbase. Vehicles that are traded in are to be destroyed, not resold, and the base manufacturer's suggested retail price of the new replacement vehicle cannot exceed $45,000. Miles-per-gallon (mpg) figures set out below refer to the EPA's published "combined" mpg.
If you have a used vehicle you want to trade in that is worth more than $4,500, the Cash for Clunkers program will probably not make financial sense for you.
An interesting article of the Economist is trying to find out wether the CARS program is really helping the economy or useless due to the phenomenon that Keynes called the liquidity trap.
Tackling the liquidity trap answers one criticism of the scheme—that it is simply pulling forward demand from the future, rather than creating additional demand. In normal times, this criticism would be more powerful. (In France, which offered a scrapping bonus in the mid-1990s, sales fell by 20% in the year after it expired.) However, in a situation where fear could lead consumers to shift to a lower level of demand that could last for years, breaking them out of that negative psychology could mean higher demand tomorrow as well as today. That does not mean that all consumption is good, nor that there should be a return to the unsustainable debt-fuelled consumption that helped cause the current mess, only that it is good to dispel the sort of irrational fear of consumption that Keynes identified as creating liquidity traps.
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