New Car: Rational or Unprincipled?

As I mentioned in my last post, I took advantage of the “cash for clunkers” program – a program I completely disagree with. As the Wall Street Journal explains, this program is crackpot economics. It will not increase net wealth and amounts to “destroy[ing] a perfectly serviceable asset in return for something he might have bought anyway.” So am I a hypocrite because I took advantage of a government subsidy I completely disagree with?

Before any decision, it is always important to ask “what is this going to accomplish?” If I chose not to take advantage of this program, would my defiance have had any effect? No. The allotted money was spent in a week and if I didn’t take that money someone else would have. The Journal piece also makes a very important point: Americans are not stupid. I was going to buy a new car next summer anyway, and now I got one for significantly cheaper.

There are a lot of things the government does that I disagree with, and it would be nonsensical for me to avoid every one of them. I don’t think the government should give me subsidized student loans, but I take them. I don’t think the government should have given me a stimulus check last year, but I spent it. It boils down to the fact not taking these things would hurt me significantly, while having no effect on the overall policy.

That does not mean I would advocate for these programs. In fact, I advocate against them. While my advocacy may not make economic sense, this is where I feel principles do play a role. When my actions start to have an impact (even minor) on the policy, that is where I draw the line.

Right to a Home?

Regardless of how you believe the financial crisis came about, Congress’s insistence on providing incentives for all Americans to own a home played a large role. Even while the housing market crashed due to the large amounts of buyers that simply could not afford their homes, large tax rebates are offered to first time buyers. My question is: Why?

A specific house is just another good available on the market. Those that cannot afford them should not have them. We apply this logic to all other goods; we don’t subsidize people who get expensive televisions from rent-a-center, nor to we typically offer large subsidies on car ownership (cash for clunkers being a very specific instance).

Now, only a very cruel individual would say those without any housing at all deserve no support. My heart goes out to the millions of Americans who lack shelter each day, and I think that government may even have a legitimate role in providing housing (although public housing is a dismal failure). But I do not understand the sentiment that these people should own a home rather than rent it.

Renting exists for a reason. Some people simply do not have enough money to make a large purchase at one point in time (home, car, etc.). In order to enjoy these goods, they borrow them from someone who does have them. They then compensate the original owner for the privilege of using the product. This is a completely natural arrangement and has existed for thousands of years.

But when Congress decides that home ownership is a policy that should be promoted by the government, and when they disburse money to further that policy, individuals do not feel the full costs of their decision. The large number of dubious loans that were promoted by Congress to allow people to “own” a home who otherwise could not afford one exacerbated the housing bubble, eventually contributing to many of those same people losing their homes. Just another example of the law of unintended consequences.