Market Intervention and Unintended Consequences.

Beware the greedy hand of government, thrusting itself into every corner and crevice of industry. — Thomas Paine

Depressions and mass unemployment are not caused by the free market but by government interference in the economy. – Ludwig von Mises

The government solution to a problem is usually as bad as the problem. – Milton Friedman

Let's examine the Cash for Clunkers program, shall we?

A billion dollars to "retire" 250,000 so-called clunkers. Another 2-3 billion on the way.

Our government creates the conditions under which the automotive industry is nearly bankrupted; forks over a bunch of money to own the car companies. Then needs to do their own "incentive plans". It's presented as important legislation, and applauded by every lawmaker in Michigan.

As usual, there are some unintended consequences.

First, they previously created a great deal of pent up demand by sucking all the capital flow out of the markets, causing everybody to delay their next vehicle purchas another year.

Then, with this program, they cause 250,000 perfectly functional cars to be physically removed from the market. Who does this help? People who were looking for one more reason to buy a car now. Let's say their trade was worth $2000. They get 3500 for it instead. Okay, a net gain of 1500 dollars.

But guess what? Now there's $2000 car that won't go to auction, and won't be available for another buyer... perhaps a student leaving for his first semester away at school. His parents now have to pay an inflated rate. Since there are no $2000 cars (due to the government scrap program), They are forced to bid up the price of any available $2000 dollar cars.

So the government has very clearly picked a winner (new car buyer), and a loser (entry level used car buyer). For every "winner" the government picks, they have to pick losers.

Another winner: The new car dealer.
Another loser. The used car dealer. Remember, a lot of these guys WERE new car dealers until this year. Now they have to tie up more capital bidding up what few used cars actually make it to auction.

Who else wins? The vehicle manufacturers. Some car plants will run a few more weeks than they might have this fall.
Who else loses? The spare parts business - - all these decommissioned cars no longer available for scrap value.

Finally, I wonder if anyone keeps track of the resources and energy necessary to build a new car vs. the cost of the gasoline to drive the old one for another year.

I for one am very tired of the government picking winners and losers, because it eventually makes losers out of all of us.