Cash for Clunkers: A new car versus your family's health

Bubblenomics hypothet number 1:  Cash for Clunkers

Imagine if you will a family man (Mr. Smith) who drives a Jeep Cherokee.  The Cherokee is a simple, serviceable vehicle.  It doesn't cost much to maintain.  It does the job day in and day out, rain or shine, through snow and ice.  Mr. Smith does not owe a dime on his Jeep Cherokee.  

One fine day, Mr. Smith reads about the government's Cash for Clunkers program on the internet.  He discovers that despite the fact that the Jeep performs very well for his family, the new program would consider it a "clunker".  He goes to a local dealership and makes a deal for a new Honda Pilot.

The Pilot is new and spiffy and his liberal neighbors will respect him for driving a more fuel efficient vehicle.  He gets $4500 from the federal government for his Jeep, which the goes to be crushed.  (Think of it as a form of motor vehicle euthanasia.)  The dealership also gives him a credit.

But of course the Honda Pilot costs more than the government and dealer credits, so low and behold, what do we have now?  Car payments, that's what.  Each month Mr. Smith will now have to shell out a $350 car payment.

Suddenly, Mr. Smith is laid off.  As a result of the layoff, he is forced to pay for his own health insurance through COBRA or find new insurance.  Mr. Smith could find a perfectly respectable PPO or HMO for $350 a month.  One problem:  Mr. Smith's health insurance premium is sitting in his garage.

Oh boy, wouldn't he like to see the old Jeep Cherokee again!