The Palmetto Insider

The blog of the South Carolina Policy Council

Cash for Clunkers a Clunker for South Carolinians

with 4 comments

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The Cash for Clunkers program results in reducing the supply of used cars, which will drive up prices for the low-cost vehicles many South Carolinians rely on for affordable transportation.

Congress has recently approved extending Cash for Clunkers by appropriating another $2 billion to the program. While it has been deemed popular in the mainstream media because the original $1 billion was used up quickly, the program is in fact a detriment to South Carolinians.

Multiple car dealerships in South Carolina have reported that used car prices are already extremely high because of a diminished supply of both new and used cars.

In fact, some used car prices are close to that of new cars. Which therefore begs the question: why are we destroying perfectly drivable cars when the used car prices are so high? In simple economics, when price is high, it is unwise to decrease supply – that will only drive up cost to the consumer.

Take the following hypothetical scenario: A 35-year-old mother of two needs to purchase a used car. She can only afford to spend $2,000. But that $2,000 car is no longer available – it’s sitting in a junkyard. There are now fewer cars available but the same number of buyers, so prices will rise.

Suddenly, the working mother has to pay considerably more – $3,000 or even $4,000 – for a car that used to be $2,000. It’s simple economics. When you cut supply, prices rise.

According to the official Cash for Clunkers website, “The program is designed to energize the economy; boost auto sales and put safer, cleaner and more fuel-efficient vehicles on the nation’s roadways.”

By employing that logic – destroying older versions of cars to make way for newer, better ones – the Obama administration is showing little regard for lower- and middle-class Americans.

If that truly is the administration’s approach, well then what about our homes? Why not go ahead and demolish homes not built to energy-efficient standards?

The problem is, Congress is committing the broken window fallacy. Economic growth cannot be created by destroying property.

Obama has consistently said he will not raise taxes on anyone earning less than $250,000. Well, what about the 17-year-old who worked two summer jobs to try and buy a used car? How much harder will it be for him to find something within his price range?

Cash for Clunkers may not by a tax, but an unintended consequence of the program is that it will act like a de facto levy on thousands of South Carolina families.

South Carolinians, prepare to pay higher prices on used cars. That means more hardship for the middle and lower classes during this recession.

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Written by Geoff Pallay

August 7, 2009 at 1:06 pm

4 Responses

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  1. It is about time someone made this point. The economy does not exist in a vacuum. Every decision results in unintended consequences and this is just going to make it worse for low-income people in need of cheap, reliable cars.

    Vagabond

    August 7, 2009 at 4:12 pm

    • The crazy thing is, I drive what qualifies as a clunker. $4,500.00 would be a fantastic boon to me if I were to buy a new car, but then I could not afford the higher taxes or insurance that a new car would require.

      Tim

      August 9, 2009 at 12:07 am

  2. […] as the Policy Council pointed outlast week, the program is in fact a detriment to South […]

  3. […] I’ve written before on this blog, Cash 4 Clunkers was doomed from the […]


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