Cash for Clunkers

As a free market economist... I can point to a number of reasons that I would be skeptical of Cash for Clunkers. As an environmentalists I like the fact that old cars are getting off the road.

Here's my prediction, and I hope it sheds some light onto one of the many reasons why I think this pigovian regulation is bound to make us worse off in the long run.

Under Cash for Clunkers people are given monetary incentives towards a new car in exchange for their old cars. As a result more people are opting to buy new cars right now. Auto dealerships are making a killing. The business is good.

The questions that come to me are, how long do people usually hold on to cars once they buy them new? If The people who are trading in cars would naturally go an buy a new car in the next 5 years or so, but they're opting to do it now, than essentially, the auto dealers boom in business is just them cashing in on future customers right now.

Here's the scary part, and this is why I think auto dealers should be scared. If people all rush to buy a car now we can expect them not to buy next year, resulting in a predicted dip in business next year. It's kind of like the baby boomers. A ripple in commerce.

What are the auto dealers going to do next year when the few people who were going to buy a new car aren't going to be buying. Business already wasn't good with the recession. The auto dealers are walking into the desert and they drank all their water on the first day.

I'm scared for the auto dealers.