This morning on Meet the Press, Erin Burnett brought up an argument about the cash for clunkers program - an argument that opponants of the program have not effectively made to this point.

Most people who argue against cash for clunkers have made general points about the absurdity of the government paying consumers for junk cars, the inherent unfairness of subsidizing new car purchases for often middle and upper middle class citizens, and of course the wasteful nature of the program.

But there is a larger point that is much more important.

Any time the government gets involved in any market - in this case, the auto industry - it artificially manipulates it.  When it manipulates a market, it has certain consequences - such as "bubbles". 

The cash for clunkers program has the potential to do just that.  By creating an incentive for consumers to purchase a new car, the government is driving the decision making process of car buyers and causing them to make purchasing decisions at a different time than they normally would.

Essentially this changes the timeline - people who may have bought a car in a year or two are buying cars now.  This causes a "boom" in car sales, but what else does it do?  Those who buy cars now will invariably keep those cars for several years, and instead of buying a car next year like they would have previously done, they will buy one four, five, six or more years from now when the car must be replaced.

By "moving up" the date, the government will cause an increase in car buying now, which they will of course hail as a success.  But what happens when the program ends and all of those people who would have been buying a car next year already have a new vehicle?  They will obviously not buy, which will again slow down car buying - and the bubble will pop.  Classic boom-bust.

This is the eternal problem of government intervention.  However altruistic the motivations of lawmakers are [and I happen to believe they are] when they come up with programs like this, by tinkering with the market they artificially change the market, and end up causing pain to the economy for relatively minor near-term benefits.  We've seen this countless times, most recently with the catastrophic housing bubble.

The motivations behind cash for clunkers are indeed good.  Getting old, gas sucking automobiles off the road and replaced with newer, more fuel efficient cars is a quality goal.  But being aware of the destructive nature of market interfearance in this and other cases should invalidate it as a serious policy. 

By avoiding foolish programs like this, we can stop another market bubble from destroying another industry.  More importantly though, we can stop arbitrarily giving away presents to some citizens who had the benefit of lucky timing while others [like me] traded in their clunkers for reliable, fuel efficient cars two years ago with no $4,500 benefit.