Seeking Liberty

Liberty is the Fruit from Which All Progress Grows

Ignoring economics, C.A.R.S. hurts used car dealers, working families

It would seem that the Cash for Clunkers program has had two major side effects: The sharp decline in sales of new automobiles after the program ended, and a sharp increase in the price of low-end used vehciles, the type that poor and lower-middle class families buy.

From the Reading Eagle:

In her search for a cheap, used minivan for her and her husband, Krissy Dieroff has visited seven dealerships across Berks and Schuylkill counties in the last week, but to no avail.

“There’s not much to pick from, and the ones we do find are overpriced,” said Dieroff of Auburn, Schuylkill County, while browsing the lot of a city dealership on Monday.

Dieroff blames the shortage of inexpensive used cars on the federal cash-for-clunkers program, in which almost 700,000 used vehicles were traded in for newer, more fuel-efficient vehicles, and then scrapped.

Those clunkers were the cars Dieroff and her husband, Jason Boyer, would have been shopping for, they said.

“I saw the cars they were putting in the junkyard, and they were better than what we’re driving now,” Boyer said.

Not that this should be a surprise to anyone. The Car Allowance Rebate System (“CARS” or Cash for Clunkers”) ignored the very basics of economics: Incentive and utility. It gave people an incentive to BUY NOW! instead of waiting for a more appropriate time to buy a new car, and it ignored the inherent utility of the low-mileage, low-end cars to the poor and middle-class families who buy older used cars.

That’s bad news in Berks, where many shoppers seek inexpensive, used vehicles, especially during difficult economic times, said George Tabakelis, general manager of Perry Auto Service & Sales on Route 61 in Perry Township.

“Customers used to be able to find a good car for their son or daughter to take to college for $2,000 or $3,000, but now that same car may cost $5,000,” Tabakelis said. “It’s sad.”

He, too, blames cash for clunkers, which has led to fewer vehicles being available at used-car auctions, and the recession.

It’s the age-old issue of supply and demand: When you have steady or increasing demand and a decreasing supply, scracity becomes a problem. When more people demand a good or service than can be supplied, the price of that good or service will inevitably increase to ween away those who are least able or willing to afford it.

With 700,000 fewer low-end used automobiles on the market and the number of unemployed and under-employed people in working families steadily increasing, the government’s Cash for Clunkers program simply exacerbated the problem of finding affordable automotive transport for poor Americans. The supply has shrunk while demand is increasing, creating an economic catastrophe that is only of the Government’s making.

The Cash for Clunkers program represented less than $3 billion in Federal spending, yet it has caused far more harm than good. The net result has been the destruction of wealth and the further deepening of the economic mess in which we currenly find ourselves. Ignoring the basics of economics and the free market has harmed far more than it has helped.

The old axiom that “The road to Hell is paved with good intentions” seems apropos.

Originally posted at The Minority Report.

Filed under: economics, Government, poverty, wealth, , , , , , , , , ,

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