Friday, July 31, 2009

Clunkers for Government


Oh, sweet irony. I can't think of one government program with more perfect symbolism to the people behind it than the "Clunkers" program. Now, if only we could trade in our junk government for something else.

Well, it appears that our all-knowing, all-seeing government has slightly miscalculated the take-up rates - and expendiency - of this program.

I know, I know, I was as surprised as you when I heard that people like free money. My natural response was something along the lines of "Get the $%&* outta here!" But alas, I guess it is true.

This marks another regularly scheduled episode of the show "Stupid Government Tricks" in which instead of dogs barking the alphabet, we have politicians robbing us blind and then acting astonished that people were willing to accept the spoils of the crime (I think the acting may be the talent portion).

If unbeknownst to me, a criminal robbed someone down my street and then came to my house donning a ski mask with pistol in hand, offering to hand me a few hundreds, I would slam the door in their face. However, if someone showed up at my door with a suit on and a "Government" lapel pin offering me money, I'd take it in a heartbeat. It's practical human response to incentivization. And there's no fundamental difference in the act that's been committed, just in the window-dressing.

The program lasted 6 days. 6 days. And then it had to be suspended because the $1 billion that had been budgeted for it was looking to be fully allocated based on pipeline transactions.

A few quotes sum it up: "People are loving it...," salesman Andy Beloff said. But when asked if the government was running the program well, Beloff said, "No. No." And "If they can't administer a program like this, I'd be a little concerned about my health insurance," car salesman Rob Bojaryn said.

Yup.

I enjoyed hearing that auto-shill Phil Lebeau on CN(BS) this morning speaking about the pent-up demand that this evidences.

Phil, you don't appear to have even a basic grasp of economics.

This evidences pent-up demand in the same way that giving away free TVs evidences pent-up demand. Ah, but you say that free is much different than a discount. Not to me, when you're talking absolute dollars that would amount to much less than this subsidy.

Here's why the pent-up demand argument makes ZERO sense. At any point along the supply/demand curve, there is a price that the free market has found appropriate based on experience. If people aren't buying at a certain price, there is NO pent-up demand. Demand is what it is. The only pent-up demand exists when at the current supply/demand equilibrium, people are planning to buy IMMINENTLY AND ARE CAPABLE, but haven't yet. Maybe they haven't had the time.

To change the demand in a meaningful way, price must fluctuate, either as a function of price or supply, or both. At that point, it wasn't an example of any pent-up demand. It was an example of a completely new demand dynamic that created new behavioral responses.

And by meddling in the free market, all the government has done is pull forward future demand (read: lower future GDP) and encouraged even more leverage into a system THAT CANNOT RECOVER UNTIL MASSIVE DEBT IS LIQUIDATED.

What to do?

I guess I'll just wait for my $200,000 Ferrari rebate to release my pent-up demand.

No comments:

Post a Comment