Clunkerism: How Government Intervention Hurts the Worse Off
Read Jason Kuznicki's withering attack on Cash for Clunkers. If destroying cars really generated wealth, he writes,
the appropriate course would be to generalize, and to destroy all goods in exchange for government scrip. Then we could play Monopoly, I guess, for what all good the money would do. But we’d have to scrape a board in the dirt to do it.
That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it. When the goods disappear, the economy grows poorer, regardless of how the money is shuffled around.
And the payback isn’t long in coming — today’s used car prices are soaring owing to reduced supply. (This link gives even more dramatic numbers, but I’m less sure of them. h/t Radley Balko.)
See how that works? You can’t get something for nothing. Cash for Clunkers turns out to have been a highly inefficient wealth-transfer program, that is, one that destroyed a bunch of wealth along the way. It gave wealth to those already relatively wealthy people who did the government’s bidding (that is, those who could afford to part with a used car and buy a new one). And now it’s taking wealth from those relatively poor people who need a used car today — in the form of higher prices.
Along the way, it destroyed hundreds of thousands of cars — that’s the real wealth these poor people don’t have access to anymore, because the scrapped cars aren’t a part of the economy.
Jonah has more:
That Washington is shocked by the news that Americans like getting free money shows how thick the Beltway bubble really is.
Like the drunk who only looks for his car keys where the light is good, Washington can only see the economic activity it has created, not the activity it has destroyed.
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Comments :
Jul '10
Re: Clunkerism: How Government Intervention Hurts the Worse Off
Cash for Clunkers was typical Lefty stupid, but I question the premise that it bears the blame for the (modest) increases in used-car prices.
I think it more likely that those increases are simply a reflection of the fact that everyone is trying to be more thrifty these days. Buyers who previously might have ponied up a premium for that new-car-smell are simply heeding the advice they've long heard: that used cars are a better value than new.
The cars junked in Cash for Clunkers were predominately on the very lowest rungs of the price ladder, but the increase in used-car prices is highest for those cars near the top.
Aug '10
Re: Clunkerism: How Government Intervention Hurts the Worse Off
Kenneth:
I think it more likely that those increases are simply a reflection of the fact that everyone is trying to be more thrifty these days. Buyers who previously might have ponied up a premium for that new-car-smell are simply heeding the advice they've long heard: that used cars are a better value than new.
I was about to suggest the same thing. Still, some of the real wealth most accessible to the poorest among us has been destroyed. That can't be helping anything.
Feb '10
Re: Clunkerism: How Government Intervention Hurts the Worse Off
When I was a kid I read a book called "Biblical Economics in Comics." Yes, you read that right. But it's actually a very good explanation of the laws of economics explained using comics of mice, cats and dogs.
In one episode, "The Case of the Cracked Crockery," the local mouse hooligan destroys Mrs. O'Mouse's clay pots. A crackpot economist named Lord Squeeks comes by and proclaims how great this is because she will now have to spend money to replace them, which will mean the potter can buy more stuff from the baker, which means the baker can go to the department store, stimulating the economy endlessly!
But the wise old owl comes by and shows the full picture: Mrs. O'Mouse was saving up that money to hire a carpenter to repair her back porch. Now the carpenter is out of a job. So the total economic picture is this: +100 mousebucks of new crocks, -100 mousebucks of destroyed crocks, and -100 mousebucks of carpentry work. Any way you slice it, destruction is a negative burden on the economy.
It goes on to say that war does the same thing, just on a massive scale. Contrary to established wisdom, a war doesn't stimulate an economy; it only brings destruction on a massive scale, not to mention the loss of lives.
Edited on Aug 25, 2010 at 12:39pmJun '10
Re: Clunkerism: How Government Intervention Hurts the Worse Off
"Whence we arrive at this unexpected conclusion: Society loses the value of things which are uselessly destroyed; and we must assent to a maxim which will make the hair of protectionists stand on end—To break, to spoil, to waste, is not to encourage national labour; or, more briefly, destruction is not profit."~Frederic Bastiat~
May '10
Re: Clunkerism: How Government Intervention Hurts the Worse Off
It's optimistic, I know, but I hope these figures sink in before the Democrats decide it's time to replace their desperate propping up of the housing market with a Razing for Refunds program.