The Car Bubble... And Cash For Clunkers II?

That’s how artifical “incentives” work on the economy. On the macro level, it is the Boom – and Bust – business cycle, whose unnatural peaks and valleys are caused by manipulation of money and credit, which causes excessive and unwarranted “investment” that – inevitably – leads to a downturn (or even a crash) when the artificially induced supply is disproportionate to demand. The housing bubble of the early 2000s is an obvious example of this.

Cash for Clunkers (same era) is another – and its unfortunate effects are just now beginning to become obvious.

As with housing in the early 2000s, the federal government decided it would be a good idea to “stimulate” new car sales by enacting a program that paid people to throw away perfectly good used cars. The idea being that they would then buy new cars to replace the ones thrown away.

Many (but not all, bear with) did so. This created a boom in new cars sales. Not only because there were fewer good used cars available, but also because the ones that remained had gone up considerably in price due to (wait for it) limited supply.This artificial scarcity in turn became the artificial incentive to buy a new car.

Actually, to take out a loan on a new car.

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