Unclear on the Concept

Robert Waldmann

Will Wilkinson* demonstrates his absolute inability to understand the concept of “opportunity cost” and complete lack of common sense after the jump.

* update: spelling Kirrected.

Cash for Clunkers
by Will Wilkinson on June 10, 2009

OK. Let me get this straight. I can get $4500 toward a new car as long as my old car gets terrible gas mileage. Well, I’ve got a 1996 Civic, which gets 30-something MPG. But it’s worth less than $4500. So I guess I should sell it for what it’s worth ($2-3000) maybe, buy a total piece of shit for as cheap as possible, and then exchange that for $4500 off a new car? I’d be several grand ahead. Of course, most of the models of new car I’ve got my eye on get worse mileage than a 1996 Civic. So if this plan induced me to buy a new car when I wasn’t going to, which it might, and I get the kind of car I think want, taxpayers will have paid me $4500 to drive a nicer but less fuel efficient car than I’ve got. Thanks democracy!

Or maybe I should just buy a clunker, get the trade-in, then instantly sell the brand new car for $2000 off sticker and pocket the rest. Anyway, better move quick. Lemons go fast when everybody’s thirsty for lemonade.

Wilkinson’s argument is that if a clunker is suddenly worth $4000 dollars more then he can make a killing by buying a clunker for its current price. There is no explanation for why someone would sell a clunker which is worth, among other things, a $4000 discount on a new car for less than $4,000.

In Wilkinson’s economic model, something which makes a good valuable give him, Will Wilkonson a profit opportunity, a windfall, even if he doesn’t own the good. The price he can get for the good goes up. The price he has to pay for the good doesn’t go up, because that’s the way the market works.

There are lots of people buying new cars, there is a finite supply of clunkers. Owners of clunkers aren’t going to sell one to Will Willconson for much less than $4,000 out of the goodness of their hearts.

I am rarely shocked by incapacity to understand economic theory or lack of common sense, but this time I am shocked.

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