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Amid the country’s headlong rush for “change,” we have at last  found a workable model for a successful economic stimulus program—one that might, indeed, bring about some real, positive and immediate change.

Ironically, this model is found in the so-called “Cash for Clunkers” program, which at the time of this writing is six days old… and which, also at the time of this writing, is out of money, having burned through its original one billion dollar funding limit.

The success of the model is not in the fact that a program --intended to operate until late October, a tad longer than the less-than-a-week the original funding lasted-- turned into a woeful example of inept government planning and cost-projecting; nor is it in the news reports of the government websites that crashed when auto dealers involved in the program attempted to access them; nor is it in the tangle of myriad forms and filings the program mandated, or in the changing of the gas-mileage criteria the government announced after the program got underway.

It’s not even in the fact that tens of thousands of American consumers could recognize a “free-money” deal when they saw it, and flocked to tap into the bonanza that their non-car-buying fellow citizens contributed through their taxes.

Instead, the “Cash for Clunkers” program has illustrated the simple fact that when people have additional money in their pockets, they tend to spend it.

I’m no economist –these days, I can hardly even pony up for a night at a Holiday Inn Express—but I do know what happens when money is spent on, say, a new car.

First, the auto dealer cashes the check. Then he pays his employees, his vendors, his operating expenses. Then he pays himself. All these actions put “additional” money into the pockets of all concerned.

And all of those people merrily proceed to spend that money, which means that, say, auto factories step up production to make product needed to meet the demand, which means that auto workers, car transporters, and component manufacturers can wet their own beaks as the surge passes-- with each transaction igniting an additional, similar reaction. In practice, it becomes sort of an economic chain reaction in the national nuclear money-pile.

All this is called the “velocity of money,” a principle an economics professor labored hard to explain to me and my fellow undergraduates long decades ago. It means that there’s a multiplier effect built into every dollar spent, based on how many hands it subsequently passes through.

It’s also a principle with application to tax revenue. Without getting into a supply-side argument, suffice it to say that each step in the chain-reaction generates revenue to the government entities who stand at each stage of the process, hands outstretched and palm-up.

As I write, Congress is about to allocate additional money –perhaps two billion dollars, probably more—to continue funding the “Cash for Clunkers” program. This, despite the administrative chaos and ineptitude of the program itself.

So precisely for what is the “Cash for Clunkers” program a model?

At present, only a minor fraction of the $780 billion dollar stimulus plan –promoted by the Obama Administration as an “emergency action” and rushed through Congress with what now appears as an unseemly haste—has been spent.

Most of that total must be funded the way you or I would fund the purchase of a house (if we could today even qualify for a mortgage): it must be borrowed, a loan secured by future tax revenues. Most economists acknowledge, whether they agree the $780 billion program was a good idea or not, that government borrowing of that and other massive sums will “soak up” much of the credit that would otherwise be available to American consumers. This, in turn, will depress spending by consumers and businesses—which results in lower tax revenues to government itself. Perhaps worse, the servicing of this debt –we humble individuals call it “interest,” or “vig” if your lender is a corner-tavern loan shark—will add additional hundreds of billions of debt-service dollars to the annual butcher’s-bill.

 All this, for an "emergency" program we're now told won't kick in anyway until perhaps sometime next year.

In 2006 (the most recent year for which reliable figures are currently available), even if one limits oneself to personal income taxes, the IRS collected about $1,044 billion. That reads “one trillion, forty-four billion” bucks,  a sum deducted from the purchasing power of individuals …and removed from their ability to provide “velocity” throughout the economy (as well as make their own decisions on what they want to "stimulate").

A modest suggestion: rather than “give” between $3000 and $4500 to people who want a new car (not to mention the inevitable hidden "pork" in the thousand-page-plus official $780 billion legislation), let's cancel the plans for the remaining, largely unspent $780 billion... and substitute a new idea instead.

 For instance, how about an immediate, one-year holiday from federal income taxes?

For every tax-paying individual.

The advantages are many and varied—but among them are:

 a) such an action would provide an immediate infusion of “additional” money to every income-earning individual, since the money could simply start showing up on each individual's paycheck

b) no new layer of bureaucracy would be needed for administration of the program (in fact, no small number of IRS workers could be transferred to other, possibly more productive, government departments), and

c)... uh, "c"...

… well, do we even need a “c” now?  

Okay, okay: if only to follow the writer’s “rule of three,” let’s simply say that since the government was going to borrow upward of a trillion dollars anyway, under my plan they can do it to replace the year’s worth of “lost” income tax revenue. They’ll likely get much of it back anyway, in the growth a stunningly renewed national economy will generate during the year-long “tax holiday.”

The “Cash for Clunkers” program thus becomes an effective example –both a good one and a bad one—for how to run a real “economic stimulus” program. It tells us what works, based on an acknowledgment of real-world consumerism; it’s also one more cautionary tale of how government can even screw up a program designed to give money away.

I submit my humble plan-revision is clearly worth a try.

And if it works, we can all afford to buy our own cars –with our own money-- this time next year.