Cash for Clunkers Falls Prey to Laws of Economics

Congress’s  ill-named “cash for clunkers” program has, like so many programs before it, failed to defy the laws of economics.

As typically happens when government subsidizes something – the price for cars has gone up. The blog “Legal Insurrection” looks at car sales data and notes that consumers are getting far less “discount” off the sticker price – which makes sense, given that dealers have less incentive to lower prices, as consumers need to buy now to take advantage of the “cash for clunkers” voucher.

They also note that the price for used cars is increase, which also makes sense, when you consider that the cash for clunkers program requires trade-ins – which would otherwise be resold (likely to lower-income households than those trading them in) – to be destroyed.

And Matthew Gagnon notes on the Next Right that all Congress has done is create another “bubble” – this time in the automobile market.  Lots of folks are buying cars now to take advantage of government subsidies, which will only result in a steep drop in sales later.