It’s the Economy, Stupid
September 13th, 2010

When I was working on my MBA, economics was my favorite subject.  I love the way that Thing A affects Thing B, which affects Thing C, which in turns affects Thing A again.  The cause and effect of it resonates with me.  I also love the psychology of it.  When Things A, B, and C are actually people or companies and they are making incentive-based decisions my little heart goes all a-twitter and I just can’t wait to see how thing turn out.  You’d think I were in the throes of an Agatha Christie novel.  (Don’t even get me started on network externalities or the Prisoner’s Dilemma.)

One of the other things that I love about economics is that it is at play in nearly every aspect of our lives, even in places we might never think to look.  One such story was covered during Morning Edition’s business news on NPR this morning and I listened intently.

Apparently used cars are spiking in price.  At first blush this sounds counterintuitive, right?  Bad economy = fewer car purchases = lower prices, or so you’d think.  But as you work through the intricacies of our current economic doldrums it begins to make sense.  A used car dealer quoted in the piece explains that,

“…with the recession, people have been buying and leasing fewer new cars.  As a result, there have been fewer cars coming off leases and getting traded in. The “Cash for Clunkers” trade-in program did not help, destroying used cars that could have been bought.

So you may not have realized it, but the nation is in the grips of a used-car supply shortage. And that is what has been driving prices up.”

I would not have been surprised to hear a story about slow sales of new cars.  I would not have been surprised to hear a story about how, during these uncertain economic times, people are holding onto their current cars a bit longer.  And if I’d stopped to think about it I probably would have eventually deduced that the confluence of these events has created a third event, which is a lower supply of used cars, resulting in increased prices.

“The economy” as it is covered in the media is a big giant hairball of a thing.  It’s abstract and difficult to understand.  There are infinite moving parts.  But when it’s broken down into bite sized pieces you can see how small it can become.  It can fit neatly into tiny corners of our lives.  It can fit into a single car on a single used car lot.  And it makes me marvel at the truth in the old political saying, “It’s the economy, stupid.” 

Yes it is.

4 Responses to “It’s the Economy, Stupid”

  1. Anne@lifeinpencil.com Says:

    Well, this is where our sisterly similarities part ways….economics makes zero sense to me. Zilch. However, I do think this is an interesting story…and is kind of too bad. Buying a used car would be, I’d guess, better for the environment. Hmmm…

  2. TheKitchenWitch Says:

    Funny, I didn’t actually think about the “Cash for Clunkers” program and how it might negatively impact used car sales. Gottta love NPR; they always provide food for thought.

  3. Gale Says:

    Kitch – Yes, I had also forgotten about that aspect of the “Cash for Clunkers” program. They focused so much on the stimulation of the auto sales market that the part about the “clunkers” being taken off the road got a bit overlooked.

  4. BigLittleWolf Says:

    I wasn’t overly fond of economics, I must say. But I’ll also mention that I didn’t have wildly inspired teachers. And my interests went more to marketing, management, and law – all of which felt more creative and more interpretive to me.

    That said, I think your point about bite size pieces makes sense. Then again, everything presented well – with plenty of examples, a “hook” and bite sized pieces – is more palatable.

    It amuses me that both my techie-politically inclined son and my artsier creative son both enjoyed economics. I’ll chalk that up to excellent teaching, and me keeping my opinions about econ to myself. . .