Wednesday, 8 April 2009

Fun Online Poll Results & The Law Of Unintended Consequences

Thanks to everybody who took part in this week's Fun Online Poll. The response to the simple question "Ultimately, who is best-placed to decide what is produced?" was even clearer than I expected/hoped, as follows:

Consumers - 87%
Producers - 10%
Governments - 3%

What happens when governments (under pressure from producers) think they can outwit the consumer? Let's have a look at the winners and losers from Germany's car scrappage scheme, as covered in today's FT:

New and nearly-new car dealerships (sales are up 11.9 per cent).
People who applied for the bung of €2,500 (1.2 million).
People who happened to own a second-hand car that was at least nine years old (the value of which must have increased to at least €2,500).
East European manufacturers of cheaper cars (exports to Germany expected to double this year), and to a lesser extent German car manufacturers.
German recycling plants (who are probably in line for more handouts to actually physically get rid of all the old cars).

The retail sector (spending has fallen on everything else, especially on consumer electronics).
Owners and vendors of second-hand cars from one- to nine-years old. "The classic used car market, with cars older than one year is pretty much dead"
The taxpayer generally, who has to foot the bill (approx. 40 million people sharing a €3 billion bill so far, plus maybe another €1 billion bung for the recycling companies).
German motor mechanics (new cars require less servicing).

Can anybody seriously say that Germans generally are now better off, or do the losses not always outweight the losses, however slightly, remembering that there'll just as much friction if and when the policy is reversed (which they are already seriously considering)?

The next Fun Online Poll is another commonsense question.


ScotsToryB said...

'(the value of which must have increased to at least €2,500).'.


Let the poor buyer gain some benefit. Say 100 euros?


p.s. Before you come down on me like the proverbial ton o' bricks, that was a light hearted comment made in my own unsubtle unlight hearted way.

p.p.s. Do you think I'm getting too sensitive for the internet?

Mark Wadsworth said...

Sure, let them keep €100 out of the extra €1,000 tax they have to pay. Not much of a bargain, is it?

Robin Smith said...

Good post.

Is the question really:

"how much new productive wealth will be created by the car scheme"

This means how much wealth, that is things that people want, NOT money, will be added to the common stock of wealth. Or will the aggregate stock of wealth of the nation, or world perhaps, have been increased or decreased.

This is the principle question to ask in these scenarios. Because if it is a negative value, then it is a pointless action.

It looks like you are saying there will be more losers, that is fewer people wanted new cars than got a benefit from the scheme.

I would tend to agree.

PS this pop up dont allow my spell checker!