The Iowa Appliance Gold Rush And The Future Of Consumer Spending

Iowa opened its “cash for appliances” program yesterday and the $2.8 million that the state had set aside to fund it was gone by mid-afternoon. All on the first day. The state announced “…all funding for the State Appliance Rebate Program has been exhausted in all rebate categories — all remaining rebate applications are going onto the waiting list.”

The same kind of offer will be made throughout the US. The rebates will be between $100 and $500 for appliances which include dish washers, refrigerators, air conditioners and dryers. There are as many individual State Energy-Efficient Appliance Rebate Programs as there are states. The money for these is funded by $300 million from the American Recovery and Reinvestment Act. Ten times that much was allocated for the “cash for clunkers” auto sales program and the money was the incentive for almost 700,000 new cars bought late last year.
It is no offense to Iowa to say that it is not only a small state; it is one of the smaller in terms of population with three million residents. That puts it in the same league as Arkansas and Mississippi. California has well over ten times as many residents. And, if Iowa’s residents can go through $2.3 million in less than a day, the entire country will go through $300 million before most people can get the name and address of an appliance store.
Iowa should tell the Congress and Administration something. Consumers may not have a lot of money or a lot of access to credit. But, if they are given a fair and reasonable incentive they will often buy a new car or a new dishwasher. In an economic world where a discount is really worth something, it unlocks the limited resources of the American consumer.  The appliances incentive plan is also a windfall for retailers who work on low margins or no margins. A few weeks of good sales compared to the usual anemic sales weeks that have plagued the retail industry could be the difference between a store being shuttered and staying in business. A lot of retail jobs are at stake this year, and the government can save some of those.

The trouble with most of the stimulus programs in the federal government’s $787 billion economic rescue plan is that the money makes it to most people and businesses indirectly. Stimulus capital may go to build a road in Iowa. One or two companies get the contract. They may hire a few new people. If they can stretch to do the work with current staff, they will. Businesses have become good at squeezing productivity out of their work forces.

Tax credits are also too indirect to motivate most people and businesses that have little access to money. A man who buys an appliance and gets a tax credit at the end of the year is not likely to buy that appliance. A man who gets the credit on the spot will at least consider the purchase.

The federal government has spent about half of the stimulus budget and does not have much to show for it, at least based on employment, housing, and GDP data. Defenders of the $787 billion in expenditures say that without the money, the recession would have been worse. It is an interesting theory, but that is all it is.

The “Cash for Clunkers” program was tangible evidence that the consumer can be pulled out of hibernation. The appliance program looks as though it will do the same.  The government has to decide that it is alright to take money from programs that do not work and quickly move it to those that do. Otherwise, the economy will slip into recession again on a road paved by lost opportunities.

Douglas A. McIntyre