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Sunday, August 2, 2009

The Unintended Consquences of Social Systems

Let's begin with the fact that ALL of the government's economic team are millionaires and in some cases multi-millionaires. That explains a lot about the incredibly stupid decisions they are making.

Remember that Cars for Clunkers requires that a car, to be destroyed in return for a $4,500 credit toward a new car purchase, has to be driveable. Today, according to, I could buy a 2002 Ford Focus LX Sedan for $4,500 and that there are hundreds more cars for sale for less than that amount within 50 miles of where I am sitting. All of them are driveable.

Under normal conditions, the dealer taking in a used car in trade for a new car would sell the used car at a local auction. Those low level auctions are the primary source of the used cars that are sold in the little independent auto sales lots in your city.

What is happening now is that the number of used cars for sale at those auctions is reduced so the supply for independent lots is restricted. Remember what happens when the supply of something is limited and the demand remains the same. That's right; the price goes up!

So what the Cash for Clunkers has accomplished is to raise the price of used cars for the very people who are most hurt by the Wall Street banker's recession, i.e., the gardeners, housekeepers, nannies, etc. for the Wall Street bankers and the Obama economic team.

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