My post on the Cash-For-Clunkers program can be found here. I felt that a list of the unintended consequences should be posted separately, so here they are…
- A perfectly good asset is destroyed.
- New car prices go up, putting buyers off into the future. (Surge in demand creates scarcity, prices go up)
- Used car prices go up, hurting lower income families. (Drop in supply creates scarcity, prices go up)
- Used car sales go down, hurting used car dealers. (Drop in demand, fewer sales, less revenue)
- Used car repair owners/mechanics suffer from fewer repairs. (Drop in supply, fewer repairs, less revenue)
- Third world countries whose low-income citizens benefited from our used car exports suffer.
- This program will affect mostly lower income households, who will now take on debt they didn’t have before.
- Car buyers may buy new when they only wanted to buy used, taking on more debt than they normally would.
- Low income buyers taking on excessive debt will increase the number of vehicle repossessions as they fail to make payments either because they do not have a steady stream of income or suffer a job loss.
- These lower income households must now pay higher insurance and registration costs.
- Wealth is taken from one group of citizens (who can not spend it now since it was taken from them) and given to another group of citizens (who spend it) which is a zero sum game.
- Environment is impacted by the process of destroying a car.
- The environment was hurt to build the clunker when it was new, then the clunker was prematurely destroyed before the end of its useful life. If we are going to hurt the environment to build something then we should squeeze as much usefulness out of it as possible.
- Since the clunker was destroyed prematurely, we must now generate new environmental damage to create its replacement.
- Future sales are cannibalized for current sales.
The Gains (none for us)
- Political capital to gain more votes for “doing something” about the economy.
- A short term burst in spending that will be canceled out in the near future from a drop in sales.
- Minimal improvement in gas mileage.
- Government Motors (GM) gets a run up in sales. Makes the government takeover of GM look like it was a good idea.
Categories: Cash For Clunkers