Cash for Clunkers Redux: Cash for Appliances
I personally believe that Cash for Clunkers was a mistake . . . you might disagree and you are welcome to your opinion – it’s a free country! (at the moment) If you do happen to believe that incentivizing consumer deficit spending through the use of government debt is a good idea, you will be happy to know that the next big thing is on the way this fall: Cash for Refrigerators. The government has set aside about $300 million for states to use to give out rebates to buyers of energy-efficient appliances like freezers, refrigerators, furnaces and central air conditioners.
The details of the program are still taking shape, but the hope is that the program will jumpstart the sale of energy efficient appliances. Sales for household appliances are at their lowest level ever and there seems to be no signs of recovery. The stock prices for appliance companies like General Electric, Electrolux and Whirlpool have seen a small jump as news of the program has started to trickle out, however, I believe it is unlikely that there will be any sustained growth in this sector. (FYI: I am not an investment advisor and anyone who would make a a stock purchase because of something I write on this blog needs their head examined.)
Here are some of the details that I have uncovered in my research:
- States are responsible for deciding how to specifically spend the money.
- The amount of funding is roughly equal to $1 per person, so more populous states will get more funding.
- Refunds will range from $50 per appliance up to $200 per appliance.
- Most sources estimate that the rebates will begin to become available in late October or November.
- You can get more information from the Department of Energy website.
If you are already considering the purchase of an energy efficient appliance in the near future, you might want to wait until the details of the plan become available for your state in October or November.
So what I do I really think about this program? Well, I do not want to upset anyone who reads this blog, but here are a few questions/statements that I think are relevant:
- This is money that the government does not have, but it will have to take from us (or our children) at a later date. It must be repayed with interest.
- What happens when the $300 million runs out? Appliance sales will probably drop even further than they have over the last year.
- What happens when people who have a perfectly good refrigerator, but decide to go out and put a new fridge on the credit card because of a government rebate? Is the addition of more debt to their household a good idea right now?
- Remember that there are administrative costs to any program like this. How much money is the government spending in order to send all of us $300 million that belongs to us in the first place?
- When will our government give us incentives to save money?
The Smiths have an older washing machine and could save up to $80 in yearly energy costs by purchasing a new Energy Star model. So they go to Sears and find a new washer for around $700. The state rebate on this machine is $100, so they finance the rest with an in-store credit card at 10% APR. The Smiths will take three years to pay off the remaining balance. The total cost of the new machine for that family will be approximately $650. Over the three years, they will save about $80 in energy costs. So they spend $650 to save $240. If the machine lasts eight years, they will have broken even.
But that is not the whole story.
Our government is now another $100 in the red and it cost them another five bucks (estimated) to process the paperwork and reimburse the retail outlet. This money adds to our debt and the interest rate on our national debt is around 5%. Eventually, Congress will have to raise taxes on the Smiths in order to finance the $105 and since our government never pays down principle, the Smith’s, their children, their children’s children and on into perpetuity will have to pay a extra $5.25 in taxes every year. Of course, this does not take into account the inevitable rise in inflation due to the devaluation of the dollar.
Now I am not an economist any more than I am an investment advisor. I am just trying to do the math. If you understand this scenario in a different way, feel free to nicely explain where I went wrong! And if you can get a new appliance for $50 or $100 or $200 less than the asking price, I do not fault you for taking advantage, but make sure you understand what you are doing.
Photo by Ingorr