The upcoming program "Cash for clunkers", a US government sponsored program to replace old gas-guzzling cars with newer fuel-efficient ones, is another example of good intentions fouling up free-markets. By creating a program that overpays for cars that otherwise would fetch a trivial market price (or would not be bought at all), the government is creating an incentive for people to buy cheap cars and sell them for higher than market value. This incentive will "crowd out" buyers of cheap vehicles in the private market (read: young people looking for their first car, hobbyists, the unemployed, etc).
I predict that at some point when this program becomes publicly acclaimed (my guess is many don't yet know about it) a portion of the used car market will get absorbed into the government's bloated budget. While this may not impact everyone negatively, it may affect less affluent car buyers by reducing the inventory of used cars they might be able to afford. Surely, it is politically popular with environmentalists. However, it is unwise to interfere with supply and demand without properly investigating secondary effects on market participants. Considering that the government is also spending lots of taxpayer money to assist the unemployed, this program seems potentially at odds with its programs to encourage employment (cars get people to work).
Four Billion dollars is a drop in the bucket of approved government bailouts, but every dollar of taxpayer money should be thought out before it is spent. This is one item in the federal budget that could be better spent.
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