Get ready for Cash for Appliances … sometime
posted at 11:05 am on November 27, 2009 by Ed Morrissey
The long-awaited follow-up to Cash for Clunkers will have to wait even longer. Despite the controversy over the car program, which did nothing except steal sales from the new model-year by using tax dollars to incentive summer sales, the White House plans to pursue its similar $300 million stimulus program for home appliances. Unfortunately, the program will not roll out for another several months, thanks to a tangled bureaucracy, and that may already be damaging the economy:
The appliances program may be destined to continue the debate. For when it comes to stimulus, timing can be critical, and the implementation of the effort has dragged on, possibly diminishing its usefulness.
Although the $787 billion stimulus program was signed by Obama in February of 2009, much of the cash-for-appliances money won’t hit the streets until next February, March or April. The rebate program is being run by state governments, which must define and enact their rebate plans with federal government funding and approval. A survey of some of the largest states shows that California is planning to begin its program in March, New York in February, Pennsylvania in the spring, Illinois in January and April.
Under the program, Virginia is expected to receive $7.5 million, Maryland $5.4 million and the District $568,000, but the requirements and rebates have not yet been disclosed.
Now the home appliance manufacturers who celebrated the passage of the program worry that the delay in its implementation might actually depress sales at first, with consumers putting off purchases until the rebates begin.
This is called price signaling, and consumers would be crazy to ignore it. Appliance purchases are significant decisions, and a subsidy program will seriously reduce the investment needed to replace old equipment. Would you buy a set of tires for $500 today when you could wait a few months and buy the same set for $375? Not unless your tires were about to disintegrate now. The government has signaled that prices will be lower in the coming months, and consumers will react accordingly.
That means that appliance sales will get depressed. People will put off their purchases until they know they can get a better deal. After all, most of the appliances getting replaced aren’t non-functional; if they were, Barack Obama and Congress wouldn’t need to subsidize their replacement. The existing appliances work just fine but use more energy, but not nearly as much as the extra cost for buying ahead of the subsidies for the consumers contemplating the purchase. While that program remains on the agenda, discretionary purchases of appliances will only occur among the blissfully ignorant.
At least Cash for Clunkers hit immediately. Whatever its other failures, it didn’t send price signals for over a year to consumers to put off their new-car sales.
This doesn’t even touch on the other reasons that these subsidy programs don’t work, such as displacing rather than creating sales, the use of tax dollars to subsidize private purchases, and so on. Even before it started, this program has been a screw-up, a self-defeating government program that will do far more harm than good. It’s a great argument for keeping government out of market distortions for social and microeconomic engineering.
Update: Don’t miss King Banaian’s take on the issue.