The ridiculous wasteful Cash for Clunkers program isn’t the only example of an industry destroying inventory with the end result ultimately being higher prices for consumers.
According to Bloomberg News, US dairies will remove 86,710 cows from their herds to be sold to slaughterhouses as part of an industry-funded program intended to boost milk prices by curbing output.
“The buyout is the third such cull in nine months, the Arlington, Virginia-based National Milk Producers Federation said today in a statement,” Bloomberg reported. “The most recent buyout completed last month involved 101,000 cows, the most ever for the groups so-called Cooperatives Working Together program, which began in 2003.”
A key difference between “Cash for Cows” and Cash for Clunkers is that the animals will go to the slaughterhouse, rather than simply being left to rot, which would be the equivalent of what’s happening to older vehicles under Cash for Clunkers.
Perhaps the difference lies in the fact that while the government initiated Cash for Clunkers, the cow culling is an industry-funded operation.
So far there’s been little public notice of the dairy farmers’ decision, but that may change when milk prices start to rise. However, the likely extra cost for a gallon of milk is going to pale in comparison, relatively speaking, to the rise in used car prices that’s coming, thanks to Cash for Clunkers.
As the South Carolina Policy Council recently reported, Cash for Clunkers will hurt lower- and middle-class South Carolinians seeking used cars down the road.
That’s because car dealerships in the Palmetto State have reported that used car prices are already extremely high because of a diminished supply of both new and used cars.
“In fact, some used car prices are close to that of new cars,” the Policy Council writes. “Which therefore begs the question: why are we destroying perfectly drivable cars when the used car prices are so high? In simple economics, when price is high, it is unwise to decrease supply – that will only drive up cost to the consumer.”
It’s simple economics: When you cut supply, prices rise.
But no one seems interested in the reality that folks looking for used cars a year or more into the future are going to find fewer vehicles in their price range because so many “clunkers” have been destroyed.
The Coyote Blog asks an interesting question while commenting on the above: Can you imagine the reaction from both the public and Congress if the American oil industry destroyed inventory to raise prices?