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Opinion: Last call for clunkers

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The Obama administration announced today that the wildly popular Kash4Klunkers Car Allowance Rebate System will end Monday afternoon, setting up one last weekend frenzy at car dealerships. Of course, dealerships ran short of high-mileage cars some time ago, so the program may already have outlived its usefulness.

Compared to other elements of the $787 billion economic stimulus package enacted in February, the CARS program was remarkably effective -- at least when it comes to promoting spending. That, after all, is the theory behind fiscal stimulus: using tax dollars to keep commerce going in the face of a pullback by consumers and businesses. On the other hand, some economist argue that it’s all smoke and mirrors because the stimulus dollars have to come from somewhere; in this view, it’s a zero-sum game, with the government taking money from one pocket in order to put it into another.

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But I digress. With CARS poised to exhaust its $3 billion allotment, what’s the logical second act? The economists featured in this week’s LATimes.com Dust-Up, Brad DeLong and Edward Leamer, agree that enacting a hefty gasoline tax would be the right way to go if the goal is just to nudge people into more fuel-efficient rides. If the point is to help the economy by spurring the automobile industry, Leamer says, Congress should quickly enact a tax rebate for new car purchases.

The Times’ editorial board urged Congress to refill the clunkers pot when the original $1 billion was running low. But now that the $2 billion refill is all but spent, my vote would be for Washington to bow out of the automobile market. Car dealers, particularly those for U.S. automakers, weren’t ready to meet the demand ginned up by the stimulus program, largely because manufacturers had cut production when the economy tanked (and they ran out of money). That was the right thing for them to do under the circumstances. In fact, one criticism of the Big Three automakers is that they didn’t adapt quickly enough to changes in demand, and as a result they had to beg Washington for a bailout last year. With new, streamlined versions of GM and Chrysler freshly emerging from bankruptcy, the last thing the government wants to do is encourage them to stay dependent on federal intervention. They have to learn how to succeed on their own, even -- or rather, especially -- in a down market.

Once the recession is well behind us, the specter of global warming may justify the government trying again to promote the use of high-mileage vehicles. But rather than providing large subsidies for new-car buyers, the best approach, as DeLong and Leamer note in today’s Dust-Up, is to push gasoline prices above $4 a gallon through higher taxes. Such an increase could force the price of just about everything to rise, however, given how much fuel is used to make or ship products. The U.S. economy isn’t ready for such a blow, and it’s not clear when it will be.

-- Jon Healey

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