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.

Cash for Clunkers, an anecdote

Jeff’s absolutely right about the cash for clunkers program: it creates an incentive for people to sell their cars to dealerships when they would have sold it to someone else. I’m one of those people.

I’ve been driving around my parents’ old 1995 Ford Explorer that had 225,000 miles on it but. But it has been maintained well and ran quite nicely. It actually would have been a great, cheap car for someone who only needs transportation to get to and from work.

But along came the government.

I  have been thinking about getting a new car for a while. I don’t actually need a big SUV and was planning on buying a sedan. My dad called me when he heard about the cash for clunkers program and suggested I take advantage of it. Since I am not at home right now (where my car is), he said he would be willing to trade in the car and co-sign on a new one.

Why act now and not wait until I get home? Well the government set aside a limited amount of money and if I had waited I may not have been able to take advantage of the program. So after deciding I could afford a new car, we went ahead and bought a 2010 Toyota Corolla.

I was never going to get $4,500 (plus trade-in value) for my old car. Heck, I would have been happy with half that. And I am sure someone would have been willing to pay me that asking price. But instead my old car is going to be scrap metal. I was looking at getting a new car and taking advantage of this program was good economics.

My dad half-jokingly referred to what we did as “misusing taxpayer money,” which raises a question I’ll address in my next post: should libertarians take advantage of programs that we disagree with (and know are wrong)?

A Government Divided

On Thursday, Nick Gillespie argued on Reason’s blog that libertarians often underestimate the influence laws can have on shaping attitudes. He quoted Mark Tushnet, a professor at Harvard law, who says “If you’re trying to chart the direction of the country–and I’ll make up a number here–95 percent of it is due to changes in culture and politics.” Tushnet argues that the Supreme Court has very little influence on social behavior and attitudes.

While I agree with Gillespie that legislation can have a powerful effect (for good or ill) on shaping beliefs and behavior, I think he and Tushnet underestimate the power of the other branches of government. Take for example, the case of Brown v. Board. Chief Justice Warren pushed very hard for a unanimous decision, knowing that a divided Court could have a negative impact on the desegregation movement.

Even after the Court found 9-0 in favor of Brown, President Eisenhower needed to enforce the decision before it could have its full impact. Only when all three branches of government were working together, did the change in social beliefs come. Obviously, racism did not immediately disappear, nor was this the only important event of the civil rights movement. But when those nine African American students walked into Little Rock High School, it affected the attitudes of many of Americans—including the other students at the school.

Overall, I feel like this reflects the wisdom of our system of government. It took all three branches of government, working together, to have such a big impact. When our government is divided, the power it has over the behavior and attitudes of citizens is weakened.

Subsidies: Public Choice Theory in Action

My letter to the editor that was posted on the Seattle Times’ website received a comment from the president of the Corn Refiners Association. She was pretty upset that I suggested that we see more food with high fructose corn syrup in this country because corn subsidies make it a cheaper alternative to sugar. She pointed out, correctly, that “manufacturers of corn sweeteners do not receive government subsidies.” However, she failed to point out that corn refiners do receive benefits as a result of the huge subsidies given to corn farmers each year.

Public choice theory explains that subsidies and other government handouts are so prevalent because there are dispersed costs and concentrated benefits. The cost each taxpayer has to pay for a subsidy is low, so there is little incentive to take the time and effort to fight it. However, the subsidies have a significant impact for the organizations receiving them and as a result, they will lobby to keep (or increase) the free money given to them. There may even be one or two other organizations, like corn refiners, that benefit and they too will lobby to keep the subsidies coming. Since the politicians are being pressured from these groups to keep subsidies and hearing virtually nothing from taxpayers, they vote for the subsidies.

One main problem is that subsidies distort the market. They artificially increase demand by keeping prices low. This makes it harder for new, possibly better products to enter the market (unless they also receive subsidies). Not only do these new products have to deal with the problem of marketing a new product against an established name, but that established name is artificially cheap because of subsidies. These products may even be more cost-effective, but if they cannot enter the market then it will be hard to prove that.

And it’s always important to remember the opportunity cost. The billions spent on subsidies could be spent on something else or the money could be returned to the taxpayers. But giving this money to the organizations that lobby the hardest doesn’t help anyone besides those lobbying. The price at the counter may be cheaper (for now), but we may be paying for it with inferior goods.