March 27, 2010

‘Cash for Refrigerators’ Program Off to Popular Start

A government program aimed at both economic stimulus and reduced emissions has caused Americans to snag up rebates for "cash for refrigerators" and "dollars for dishwashers."

The program includes nearly $300 million to encourage consumers to buy newer, energy-efficient models.

U.S. officials say this program will help reduce the U.S. carbon footprint because of the heavy electrical consumption of big appliances, and at the same time help bump the economy.  The effort is a small part of the $800 billion economic stimulus package enacted last year.

In Iowa, the $2.7 million in federal funds was exhausted in less than a day by stampeding consumers.  The state offered rebates up to $500 on refrigerators, washing machines and dishwashers. 

The state agency administering the program in Ohio said it "anticipates the rebates will be exhausted in a few weeks."  The program launched in Ohio on Friday with $10.5 million.

New York still had $5.6 million remaining this week after its $18.7 million started to be given out.

"It's been a boon to consumers and retailers," said Francis Murray of the New York State Energy and Research Development Authority.

California will hold the biggest of the state programs, which expects to launch April 22 with $35.2 million.  More states will be launching rebate programs in the coming months.

Consumers must buy appliances that meet energy standards set by the federal government in order to qualify for rebates.  Some states offer extra rebates if consumers recycle old appliances.

Some see the program as a natural follow-up to the "cash for clunkers" auto trade-in program, which lifted auto production and jobs to help pull the U.S. economy out of its slump.

Ryan Sweet, an economist at Moody's, said the appliance program probably had an impact on sales and orders for durable goods, big-ticket items expected to last at least three years that are critical to the manufacturing sector.

"Eight states launched rebate programs last month, which would help explain some of the strength in sales at both electronic and building material stores," he said.

"This also argues for strong gains in subsequent months and lends some upside risk to our forecast for real durables spending."

Joel Naroff at Naroff Economic Advisors said the effect of the appliance program might be far less than the cash for clunkers program.  He said the impact might be reduced even more for appliances purchased that are made outside the U.S.

"On a 600 dollar washing machine, the retailer may make 100 dollars but the manufacturer will make 300 dollars," he said. "But if the manufacturer is on the other side of the world, that's 300 dollars that goes out of the economy."

Economists Burton Abrams and George Parsons of the University of Delaware said that both the clunkers and appliance programs are lemons for taxpayers, mainly because they are destroying products and assets.

The economists say the societal loss of the auto program was as much as $2,250 per vehicle because "the value of resources used exceeded the value of resources created. In effect, we shrank the economic pie to improve the conditions of some workers and perhaps some sectors other than labor."

They say the overall loss is more modest for appliances, at six dollars for every $100 invested.

"In essence, the taxpayers... are putting 100 dollars into the pot on behalf of society as a whole," they concluded. "Society gets back nine dollars in environmental benefits. People who buy refrigerators, on average, get 85 dollars in value from the cash transfer. The other six dollars is lost to everyone."