The big guy has done it again and shown that he does not know a thing about economics. His latest was his statement that, "if your car only gets 8 miles per gallon, you should consider trading it in...". I will admit that high gas prices are a consideration when purchasing a car, but when it comes to economics, there are a lot of other things that need to be considered. To make this simple, I am going to use an example.
First the guy with the car that gets only 8 miles per gallon. My guess is that the car is an old one an it has a "zero" trade-in value. Further, the fact that it is worthless, there is no need for collision insurance. If the car only gets 8 miles per gallon, you can bet that the person is not driving it from coast to coast either. Now with these assumptions, lets do some calculations. If gas costs $4.00 per gallon, the cost for gas per mile comes out to be $0.50/mile. The cost for depreciation per mile is "zero". The car is not worth anything. They would have to carry liability insurance on the car since in most states, that is the law. If the policy cost $500/year and they only drive 250 miles per month, the cost per mile would be $0.17/mile. Adding all this up, I get $0.67/mile. That seems high, but figures don't lie.
Now let's look at Obama's recommendation. Our person goes out and borrows $40,000 from the Chinese to buy a higher mileage car. He figures that after 5 years of driving, the car will only be worth about $10,000, so for each year he drives the car he will lose $6,000. Now he only drives 250 miles per month or 3,000 miles per year. Using my 4th grade math again, I get $2.00/mile. Now this is a great car that gets 35 miles per gallon. Again, the 4th grade math---$0.11/mile. He will still need the liability insurance costing the same $0.17/mile. Because this is a newer car and he has financed it, the China man will require collisions insurance too. He would be lucky to get by for $600/year and this would add $0.20/mmile. Now let's add up the figures for Obama's advice. We get a total of $2.48/mile.
Now we return to our 4th grade math and notice that Obama's advice will cost us 3.7 times the cost of keeping our old car. Isn't this starting to look like the old "cash for junkers" program that was such a boon-doggle? Have you noticed that if we did just the opposite of what Obama has advised, we would have been making the correct decision every time? Does that also tell you some thing? Notice that no one in the media seems to know 4th grade math either because we have not heard a sound about what he said. We only hear them saying that he should not have made a joke about the situation. His joke is not the problem. It is what he said, because that must also be what he was thinking and if he thinks like that, we don't need him spending our money.
