Cash for Clunkers: Why Government Should Not Meddle In The Economy

by Sal on July 31, 2009

in Economy,Politics

The Cash for Clunkers Program, a stimulus program designed to help Detroit, gave people up to $4,500 in cash for old cars if they exchanged them for so-called “green” cars.  The program was supposed to go from last week through the end of October, but was shut down last night because of the law of supply and demand.  You see, price determines the equilibrium of demand vs. supply.  It sets what people are willing to pay for an item at the supply levels that exist.  However, when something is given away for free, (i.e. free money), the demand will be substantially higher than if a price is attached.

Case in point:  about two weeks ago, a Chipotle restaurant opened about 10 minutes from my house (a very dangerous situation).  The day they opened, they announced “Free Burrito Day” with all burritos 100% off.  When MrsSal and I went to get our free  burritos, the line wound its way through the store, out the door, around the corner, and down almost  the entire side of the restaurant.  Luckily, Chipotle anticipated the demand that would be generated by its free burritos, and efficiently and effectively moved their product into the hands, mouths, and stomachs of their eagerly awaiting and quite hungry clientele.

The Government, however, was not as astute as Chipotle.  They did not anticipate the demand that would be generated by the Cash for Clunkers program, and the $1 billion allocated to it that was supposed to last for at least 3 months has been spent (it probably didn’t help that a loophole was found in the law, allowing people and dealers to work out deals to use the money on any car of their choosing).  Now, Congress wants to spend more and revitalize this program, adding still more to our record-breaking deficit.  Yet if Government cannot anticipate the basic law of supply and demand, why are we to trust them on understanding health care, the financial sector, unemployment, small businesses, the auto industry, or any other area of our nation’s economy that they are trying to inject themselves into?

{ 2 comments… read them below or add one }

Ryan July 31, 2009 at 10:51 am

I always find it amusing that the government’s philosophy continues to be that if a program isn’t working, they must spend MORE money and make it a bigger, more encompassing project, somehow expecting a different result.

Plus, any Chipotle giving away burritos is automatically a dangerous place to be! Lines never lie.

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UNRR August 1, 2009 at 5:33 am

This post has been linked for the HOT5 Daily 8/1/2009, at The Unreligious Right

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