Diary

Cramer's (Non-)Remorse, XI: "Clunk"

I’m very appreciative of the positive feedback I’m getting on this series, but I have to caution those optimistic that we are seeing a “conversion” in progress that we’re a very long way away from that.  Case in point, Jim Cramer’s morning article titled, “Don’t Hit the Brakes on ‘Cash for Clunkers'”, written in response to a Wall Street Journal editorial shredding the program.

I’m not entirely sure where Cramer falls in terms of economic theory, since his emphasis is so heavily on the practical aspects of events, i.e. what stocks should you buy and sell because of this.  But as I noted before, Cramer is definitely not shy about increasing federal spending when he feels it is justified.

Cramer’s response to the WSJ editorial makes four basic points.  First, that the $4 to $5 billion or whatever it ends up comes to is “no big deal”.  Of course, as we read this morning, a bunch of these “no big deals” can add up to a lot.

Second, and I’m not sure Cramer realizes what he’s admitting here, that “GM and Chrysler are gigantic welfare programs” and continues in a tenor suggesting that employees there are effectively in “make-work”.  I’m not sure why we should be encouraged about the revival of something reminiscent of the New Deal (Cramer is a good enough student of history to know that that didn’t really end the Depression), other than maybe if the unemployment numbers are made to look low, people will feel better about the economy.  Or something.

Cramer’s third point is that Ford is benefiting from this too.  Which I suppose it is, for now anyway.  But I can’t help wonder what’s going to happen when the goodwill from that $3500 or $4500 runs out and people start to have to start making car payments that they likely didn’t have to before.

Cramer’s last point — and this is going to be a gut shot for those rooting for a conversion — is that it’s good for fighting global warming.  Yeah.  Admittedly, the environmental downside here is hard to see, at least if you choose to ignore what it’s going to take to dispose of all the clunkers being turned in.

To Cramer’s credit, he does go on to come up with a counterargument to his own view, that this is reminiscent of the New Deal’s Agricultural Adjustment Act, one of its more infamous provisions wherein livestock was slaughtered in mass in order to raise prices.

But to summarize his view with the Money Quote:

It worked for the Chinese with their vouchers to spend, it’s working here. What’s the issue? Come on Senate, go make it bigger!

When being more like China is his goal, you know we have a long way to go.