Cash for Clunkers a Clunker for South Carolina

Geoff Pallay
August 7, 2009

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 diminshed 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.

Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2009. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201. Visit the Policy Council Facebook page at www.facebook.com/scpolicycouncil or Twitter at www.twitter.com/scpolicycouncil.