Wednesday, November 10, 2010

The Government Car Buying Program: An Analogy


Imagine for a moment the government determines owning a late model automobile is the right of every American (actually, this isn’t too hard to imagine).  Congress and the President rationalize that it isn’t fair for only a small percentage of the population to afford a new car.  They believe it is their prerogative to introduce and pass legislation establishing a government car-buying program to grant every American the “right” to own a new car.  Further, they defend their position by asserting the Founding Fathers couldn’t have even dreamt of modern automobiles when they wrote the Bill of Rights; if they had, they most certainly would have included the right to own a new car.  Moreover, the constitution calls on the Feds to support the general welfare of the populous – and a new car is most assuredly necessary for the general welfare.  

Bolstering the urgency of implementing a car purchasing program is the rampant increase in car prices over the last decade.  Car dealers have been unscrupulously charging more and more for their cars leaving poor Americans at an ever greater disadvantage.  The President launches a town hall style crusade to sell Americans on the need for a car purchasing program.  He rants against the greedy car dealers who have been including options on their cars at higher costs to consumer just to make more money knowing the banks will cover it as part of their car loans.  Various guest speakers come to the podium to lament the plight of owning an old car that breaks down routinely causing them to lose hours at work, rack up a horrendous repair bill, and make it even more difficult to purchase an ever more expensive new car.  A few dissenters in the audience ask the President questions, but he manages to avoid answering them by sticking to his lengthy talking points. 

The banking industry already provides car loans to consumers and is concerned the government wants to establish a single-payer system for purchasing cars.  Their lobbyists go to D.C. and defend their interests.  After much negotiation and promises for generous campaign contributions, the legislature amends the draft bill, despite the outcry from purists in the party who believe a single-payer system is the only way to properly implement a fair car purchasing program.  The new bill resembles a compromise of interests.  It requires banks to lend to everyone, regardless of pre-existing payment problems or bad credit.  Banks are also forbade to establish restrictions on the total amount of cars or total dollar value of car loans a person can have at any given time.  Offsetting the banks’ worry that these restrictions will undercut their profits, the bill further mandates all Americans to enroll in the car purchasing program – after all, people not choosing to have car loans are taking unnecessary risks by assuming their old cars won’t have mechanical problems.  The bill provides for government subsidies for Americans the government determines are unable to afford monthly payments of a car purchasing program on their own.  In addition, the bill creates a public option car purchasing program at no cost to enrollees who qualify. 

Paying for this massive new bill becomes a point of contention.  The legislature bounces revisions back and forth with the CBO until the initial analysis suggests a deficit neutral tax structure.  Private car purchasing programs offered by the bank that are too generous will be taxed, a true “Cadillac” tax.  In addition, the government is going to cut back Medicare costs by eliminating the free mobility scooter program.  Despite the new taxes and Medicare cuts, the President assures the bill will bring affordable new cars to all Americans without adding to the country’s deficit.

The bill passes the House and Senate and is signed into law by the President.  As soon as the law’s provisions go into effect several banks inform customers that their monthly payments will be higher than thought because the provisions in the bill increase their costs.  The President launches a tirade of accusations at the banks and suggests their opposition is because of their loyalties to the other political party.  He accuses them of loving the failed status quo that left millions of Americans without new cars while making the banks rich beyond imagination.  Still other banks cut back their existing programs because they fear them being taxed as “Cadillac” plans.  Some banks cease offering the plans altogether because the law controls how much profit they can make and the provisions make it impossible for them to compete.  These banks refer their customers to the government’s car buying program instead.

By the time the government’s car purchasing program is launched, four years after the bill was signed into law, millions of Americans are clamoring to join the government program because many more banks have stopped offering the program.  The government welcomes them with open arms and begins righting decades of social wrongs by allowing all Americans to have new cars.

As the government program gets underway, the enrollees begin to purchase new cars.  Contrary to the assumptions made by Congress and the President, enrolled Americans use the program to purchase cars without concern for the price.  Driveways, garages, and public housing parking lots fill up with luxurious SUVs, trucks, and sports cars.  Americans with old and new cars begin trading up to newer, more expensive models.  In less than a month the entire year’s budget for the government car buying program is evaporated.  In an emergency session, Congress agrees to double the funds for the program.  Again, those funds evaporate as millions of Americans flock to the new cars.  With a surge in demand, car prices rise quickly, but Americans take no notice because they car purchasing program continues irrespective of the costs.  Where once they purchased based on what was affordable, now they are completely insensitive to the costs.

Seeing the impending budgetary doom, Congress holds another emergency session.  Suggestions vary, but none of the politicians offer to repeal the program because owning a new car was deemed a fundamental right.  Taking away the “rights” of Americans would spell doom for their reelection campaign and provide much campaign ad fodder to the opponent.  Congress decides they need to use their significant purchasing power to negotiate better rates with the car dealers.  Because the majority of Americans are on the government car buying program Congress tells the car dealers they will either play along with the new pricing or they will lose most of their customers.  Car dealers agree to prices that are 50% of what they were originally charging.  The President launches a media blitz to tout the success achieved by having a (almost) single payer system.

Private banks still offering the car buying programs attempt a similar tactic with the car dealers, but their smaller customer base is a less compelling negotiation.  Several banks merge to create a greater customer base and improve their negotiating position.  Car dealers yield some but private car buying plans are still paying rates far in excess of the government program.  Several customers leave the banks in favor of the lower cost public option, even if it offers less choice.  The small banks that didn’t merge and can’t compete either declare bankruptcy or cease to offer car buying programs.  A few car dealers begin to participate only in private car buying programs because they are more profitable.  Still others shutter their businesses because they can no longer make a profit.  Remaining dealers lower their cost structures by reducing customer service and deferring maintenance on their facilities.  Car manufacturers also feel the pinch and begin to lower their costs.  They stop producing some models entirely, they begin to reduce features, and use lower quality parts to cut costs and stay financially viable.  Several manufacturers go out of business entirely.  The reduction in car dealers, banks, and manufacturers puts hundreds of thousands of Americans out of work and commensurately more people join the rolls of the government’s “free” car buying program. 

Despite the efforts and negotiated pricing, Americans are still buying new cars in record numbers and at alarming frequency.  Congressional budgets are blown away with the excessive costs of the car buying program.  Congress takes action and implements what it terms “common sense” restrictions on the car buying program.  Enrollees in the program will be restricted to one new car every five years.  In addition, only certain cars are allowed under the program.  Married or single Americans are only allowed to purchase sub-compact cars.  Americans with one to three dependents are allowed to purchase a compact car with a rear bench seat.  In order to encourage more carbon-neutral family sizes, the government decides the cost of purchasing anything larger than a compact car will be borne by the consumer.  The change brings demand for anything other than sub-compact and compact cars to near zero.  Most manufacturers stop production on all other vehicles and more jobs are lost.

The car buying program makes used cars virtually worthless as Americans prefer using the mandated programs to buy new cars.  The result is a rash of vehicles flooding junk yards all across the country.  When the restrictions were implemented there became a market for used vehicles that were larger and nicer than the few remaining choices.  A couple manufacturers continued to produce nicer, larger luxury vehicles and a handful of dealers remain in business by refusing any form of car purchasing programs and selling the nicer cars and the used cars now in demand.  Of course, only more affluent citizens are able to purchase these vehicles.  Cries of unfairness rise up from the population and the politicians begin to worry about their reelection.

Citing discrimination and environmental concerns, the government passes a new law making the selling of vehicles outside a car purchasing program illegal.  Additionally, dealers are no longer allowed to accept private car purchasing programs while not accepting the government’s program.  When a new car is purchased, the law mandates the old car be confiscated and sent to a recycling facility.  The government further mandates that all new vehicles be manufactured 100% from recyclable materials.  Citizens in possession of an “old” vehicle are allowed to keep it as long as they don’t attempt to purchase a new vehicle through the car buying program.

The change puts the dealers and manufacturers that were not working with the car buying programs out of business completely.  In their stead, a black market for used vehicles takes root.  Being traded covertly, these vehicles are not subjected to any provisions in the massive government regulations concerning automobiles: no emissions checks, no gas mileage limitations, no recycling, no safety standards and so forth.  A few people are caught and imprisoned, but several large cartels manage to survive and many people become very rich from the scheme. 

Customers no longer see the benefit of the private car buying programs which were higher cost, but offered better selection.  Private banks begin to declare bankruptcy as their customers flock to the government program.  Deeming them too big to fail, the government buys out the failing banks and rolls the last remaining private car purchasing program participants into the government program.

Although small in comparison, the new enrollees in the government program put additional cost pressure on Congressional budgets.  The government again increases the interval between car purchases and imposes even more cost restrictions.  More dealers shutter, requiring consumers to travel great distances to find a dealer only to be met with massive lines, product shortages, and non-existent customer service.  Sensing the angst among citizens, the government steps in and assigns Americans to specific dealers with specific dates they are allowed to pick up their new car. 

The government restrictions cause all but one manufacturer to remain in business.  Further cost constraints cause the sole surviving manufacturer to declare bankruptcy.  The government determines this manufacturer is too important to fail and takes over the company.  Under the government’s control decisions are made by unqualified bureaucrats hired by career politicians who are beholden to special interest groups through their campaign donations made necessary for reelection.  Costs sky rocket, innovation ceases, and quality nose dives.  Only two car models are produced.  They are then shipped to dealers based upon which politicians manage to sneak earmarks into unrelated bills thereby allocating cars to his or her district as a ploy to “buy” votes. 

Amid increasing costs due to rampant mismanagement of automobile production, the government is again forced to take budgetary action.  They extend the new car purchasing interval to 10 years.  In addition, they determine anyone aged 26 or younger can simply use a parent’s vehicle; thus, only Americans older than 26 are allowed in the car buying program.  Additionally, the elderly are deemed a safety risk that shouldn’t be allowed on public roads.  Furthermore, the elderly could die at any moment which would be a potential waste of a new car; therefore, no one over the age of 60 is eligible for the car purchasing program.

Mismanagement continues to run rampant within the government.  Concerned about the poor outcomes, the government hires thousands of new bureaucrats to try and rein in the problems.  Strangely, things continue to get worse.  Americans begin to protest in the streets over the poor quality and rumors of even more government restrictions on the car buying program.  Congress takes to action again.  They convert the car plant into a commuter bus plant and outlaw all non-bus automobiles at the urging (meaning big donations) of environmental lobbyists.  The government concludes that the right to own a car had been improperly stated – it is really only a right to have transportation...

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