Monday, October 25, 2010

Feds To Manipulate the Vehicle Market Again

Economists and industry observers are in agreement that Congress's "Cash for Clunkers" program merely pulled forward car purchases that would have taken place in subsequent months (and drove up the price of used cars to boot, showing their hatred of poor people). At least some of us had the opportunity to get a little bit of our neighbor's money by participating in this market distorting event. The Obama administration's next big distortionary stampede through the vehicle market, unfortunately, won't favor some of us over others, it'll just be what economists call a "dead weight loss." The results of this policy will be predictable, and not just by employing elementary lessons of economics and logic, but by looking to recent history. New truck emission standards were last implemented on October 1, 2002 (which also points out that the reporter in the story got things wrong). Back then the new standards resulted in increased fuel consumption (the engines contained numerous emissions-controlling componets which made them less efficient) and thus increased cost for truck owners and operators. So what did truckers do? They went out and loaded up on trucks from the model years just before the standards went into effect, so they could benefit from years and years of the older technology before they had to absorb the mandated increase in costs. Truck tractor sales soared in the years leading up to the change and plummeted immediately after the change. Of course, this wasn't the only distortion involved; because truckers spent all of their capex and more on these extra tractors, they didn't have any money left to maintain and refresh their trailer fleets. This is from a leading trailer manufacturer's 2003 annual report: "The trucking industry...reduced trailer purchases from a high of approximately 306,000 in 1999 to approximately 140,000 units in 2002, a 54% decline in demand." The exact same thing will happen this time around, there will be a rush to buy vehicles before the standard goes into effect to save on inevitable costs that the mandate will impose, and the effects will ripple through the industry and all those who touch it. All in the name of the false god of controlling emissions.


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