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Monday, August 03, 2009

Shifting auto sales from the future to the present

“The “cash for clunkers” program provides a microcosm of the unimaginable macrocosm,” writes our macro-economic adviser, Rob Parenteau. “Funding for this trade-in program was originally expected to last until October, but the response has been so overwhelming that it’s already running out of money and Congress is rushing to add more cash.

“So here we have it. The government dangles a subsidy worth over $4,000 before the eyes of otherwise tapped-out households. The auto dealers tirelessly hype the offer. Pavlov’s dog hears the bell and starts drooling all over himself. Auto sales are shifted from future sales periods into the present, and voila, the can is kicked one more block down the road while the fiscal deficit winds higher. If we had to capture the policy steroid game in a nutshell, that pretty much sums it up. But it does work in the near term.”
-- from "A New Employment Crisis, Cash for Clunkers, Buy This Commodity and More!" by Addison Wiggin and Ian Mathias

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