$300M to target kitchen clunkers

WASHINGTON — In U.S. history, there may have been no better time to own a junk car, a rattling old fridge and a leaking dish-washer.

On the heels of its ballyhooed Cash for Clunkers program for cars, the federal government is expected to finalize details in the coming weeks of another tax-supported shopping extravaganza. Supported by $300 million from the economic stimulus, the Cash for Appliances program will offer rebates to consumers who buy energy-efficient refrigerators, dishwashers, air conditioners and other appliances to replace older models.

And like the $3 billion cars program that gave consumers money for swapping their clunkers for more fuel-efficient rides, the appliance initiative seems destined to inspire shoppers, drive up sales for a while and profoundly divide economists over how much lasting good this chunk of government spending will do for the economy.

"The premise seems to be that for Americans to be richer, they need to throw out their old appliances faster — I don't see it that way," said James Hamilton, an economics professor at the University of California at San Diego. "I don't like the idea of just spending money for its own sake."

Many economists believe government incentives to lift consumer spending can boost the economy during a recession, but they differ over whether the sales spikes that accompany the rebates are meaningful or merely concentrate sales that would have occurred before and after the rebate period anyway.

The Obama administration's Council of Economic Advisers has indicated the clunkers program provided a worthwhile boost even though many of the 690,000 clunkers sales would have happened anyway.

In their baseline assessment, the program increased car sales this year by 330,000.

Clunkers "is one of several stimulus programs whose purpose is to shift expenditures by households, businesses, and governments from the future to the present," the council wrote in a September report. "Such time-shifting is valuable in a recession, when the economy has an abundance of unemployed resources that can be put to work at low net economic cost."

California's program to begin in March

When it comes to stimulus, timing can be critical, and the implementation of the effort has dragged on, possibly diminishing its usefulness.

Although President Barack Obama signed the $787 billion stimulus program in February, much of the cash-for-appliances money won't hit the streets until February, March or April of next year. The rebate program is being run by state governments, which must define and enact the plans with federal government funding and approval. A survey of some of the largest states shows California is planning to begin its program in March, New York in February and Pennsylvania in the spring.

The home appliance manufacturers who celebrated the passage of the program worry that the delay in its implementation might depress sales at first, with consumers putting off purchases until the rebates begin.

"Our desire would be to see these programs rolled out as soon as funding is available," said Jill Notini, a spokeswoman for the Association of Home Appliance Manufacturers.

"Unfortunately, you may have people saying, 'It's kind of on the blink, but we'll wait.' We wish that the states would follow the intent, which is to stimulate the economy now."

U.S. appliance shipments down

Shipments of home appliances in the United States, which are closely linked to new home construction, are down 12 percent from last year, Notini said, after three years of decline.

No one doubts that the appliances program will attract consumers. Although the programs will vary by state, some of the proposed rebates that have been announced range from $50 to $100 per appliance. The state-administered programs also have varying requirements regarding whether consumers must recycle an old appliance to qualify for the rebate.

Overshadowing the debate over the rebate program are questions about the health of the U.S. economy, which despite some signs of strengthening is still beleaguered by high unemployment. So while the rebates may be slower to get into consumer's hands than some had hoped, some economists said the economy remains weak enough to justify the program, even if it isn't enacted yet.

"No one is saying we are going to have too much growth next year," said Zach Pandl, an economist at Nomura Securities.

"We want full employment of the economy's resources, and we're nowhere near that at this point."