The Car Bubble
A guy who smokes meth can pull a week of 15 hour days. But come next week… .
That’s how artificial “incentives” work on the economy. On the macro level, it is the Boom – and Bust – business cycle, whose unnatural peaks and valleys are caused by manipulation of money and credit, which causes excessive and unwarranted “investment” that – inevitably – leads to a downturn (or even a crash) when the artificially induced supply is disproportionate to demand. The housing bubble of the early 2000s is an obvious example of this.
Cash for Clunkers (same era) is another – and its unfortunate effects are just now beginning to become obvious.
One, the government keeps piling on mandates – safety and emissions – which add parts or require new designs, none of which comes free and often comes very expensive. The VW Diesel Debacle is a case in point. We know now that the cost per car to make the “cheating” diesels meet Uncle’s mandates amounts to several thousand dollars per car – an amount so high that the cars are not worth “fixing” and so will be thrown away instead. And because the cost to make Uncle-compliant diesel is so high, VW has decided to make them no longer (see here).
Two, buyers want gadgets.
Even “economy” cars now come with or offer LCD touchscreens and power pretty much everything.
Which is fine – except people can’t really afford this. Or the mandated-by-Uncle equipment. Debt is necessary to make it all feasible… temporarily.
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