I'm using "bubble" in a nontechnical sense because, strictly speaking, a bubble is an unsustainable inflation of asset prices inconsistent with economic reality. However, even a wrongheaded tax preference is real and sustainable. So if the tax break is the reason for the alpaca boom, there's really no bubble.
The Alpaca Owners and Breeders Association says the UC Davis study is "seriously flawed (and) full of misinformation," but offered no evidence for that bald assertion. The authors stand by their study, saying that no conflicting studies have been published and that their research is confirmed by a recent price decline.
Government is good at inflating bubbles. The housing bubble was fueled by low interest rates, tax breaks and subsidies.
Last year, I reported how Congress' ridiculous tax credits stimulated demand for electric golf-carts. Electric vehicles are touted these days as "green" technology and so were given special tax treatment. Unfortunately, the plug-in carts are ultimately connected to coal-fired plants. The National Research Council says electric cars may be worse for the environment than gas-powered cars. That didn't matter to the policy-makers.
As a result of the tax benefit, golf-cart dealers had a field day. One advertised that his $6,000 carts were "free" because of the $6,000 tax credit. Gov. Mike Huckabee got one. His friend got seven. I got one, too.
The deal sure helped the golf-cart industry. My dealer sold 10,000 of them.
At least the golf-cart credit expired. Most government giveaways never go away.
Get ready for the bust of the alpaca bubble. Sadly, Congress will then probably bail out bankrupt alpaca farmers.
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