Saturday, August 15, 2009

Externalities & Cash for Clunkers

Oh-ho! Here's an externality to the CARS program I hadn't considered:

"ST. LOUIS, MO ( - The reports of a recovery may be greatly exaggerated. Both consumer confidence and retail sales dropped last month, indicating a recovery from the recession is still a long ways off. Analysts had expected retail sales to rise, spurred by new car sales because of the cash for clunkers program. Apparently consumers cut spending on everything but cars."

So the cost of encouraging the populace to subsidize a dying industry is that all other industries are hurt, eh? Man-o-man, why is it so easy for politicians to pretend like they can get something for nothing?

Here's a suggestion: before any government intervention in the market can be executed, it must include a statement detailing what harm it will cause to balance out its intended benefit. And to be realistic, we should be sure that the stated harm is greater than the stated benefit. Then, if as a public we really think the intervention is still worthwhile, we can execute it.

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