"To announce that there must be no criticism of the president, or that we are to stand by the president, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public." -- Theodore Roosevelt

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Wednesday, August 25, 2010

Cash for Clunkers: Subsidies for Raising the Price of Used Cars for Working Class Families


As the fallout from the "Cash for Clunkers" program has become more readily apparent, we are once again confronted with the fact that Obama and his economic advisory team really have no clue about what they're doing.


"With home prices falling, fewer people employed, and every economic indicator on the dashboard flashing red, deflation has started to become a big enough worry that the Fed has adjusted its monetary policy to account for it. There are no such worries in the used-car industry, however. Prices have jumped 10% overall and in some cases as much as a third for used cars, thanks not to demand as much as a restricted supply after the government destroyed billions of dollars in assets as part of its Cash for Clunkers program last year (via Instapundit):

"[quoting from edmunds Daily] 'Car buyers on average paid $1,800 more for a used vehicle in July than they paid a year ago at this time, according to Edmunds.com data. That’s a 10.3 percent increase, bringing the average cost of a 3-year-old vehicle to $19,248. The price of a Cadillac Escalade spiked nearly 36 percent. “A lack of confidence in the economy is driving more people to used cars, putting upward pricing pressure on a limited supply of vehicles,” said Joe Spina, a senior analyst for Edmunds. …'

"'Spina said that at this time last year, a troubled economy had consumers buying less- expensive fuel-efficient vehicles and trading in "gas guzzlers" through Cash for Clunkers (more formally known as the Car Allowance Rebate System). "Now, those who need trucks and large SUVs are buying them and in many cases are turning to used vehicles as a way to save money," he said. "Prices are high because this demand comes at a time when inventory is low as a result of the current shortage of lease returns and trade-ins for vehicles of this type." And, he said, while prices are indeed very high now, last year’s prices were low, making the gains even more dramatic.'

"In other words, there was real and rational demand for the cars that the Obama administration sent to the grinders. That demand hasn’t stopped, even if tainted with political incorrectness.

[...]

"As predicted last year, the people most hurt by the price increases are those who can least afford them. The used-car market usually attracts people who need transportation on a budget, who cannot afford to buy new. By destroying a quarter’s worth of trade-ins in three weeks and permanently taking them off the market, the Obama administration has forced an artificial inflation by supply restriction. Moreover, they did so by subsidizing new-car sales that would have occurred anyway, eating up three billion dollars in taxpayer money.

"In other words, the White House spent $3 billion to make used cars more expensive for working-class families. Nice work."


"That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it. When the goods disappear, the economy grows poorer, regardless of how the money is shuffled around.

"And the payback isn’t long in coming — today’s used car prices are soaring owing to reduced supply. (This link gives even more dramatic numbers, but I’m less sure of them. h/t Radley Balko.)

"See how that works? You can’t get something for nothing. Cash for Clunkers turns out to have been a highly inefficient wealth-transfer program, that is, one that destroyed a bunch of wealth along the way. It gave wealth to those already relatively wealthy people who did the government’s bidding (that is, those who could afford to part with a used car and buy a new one). And now it’s taking wealth from those relatively poor people who need a used car today — in the form of higher prices.

[...]

"And this is what passes for a successful government program."

Don't worry though. It was all Bush's fault...

1 comment:

  1. For an analysis of cash for clunkers programs in different countries, see:

    http://www.globalsubsidies.org/en/resources/december-2009-car-scrapping-schemes-effective-economic-rescue-policy

    ReplyDelete