The economic illiterates in Washington are so impressed with the
"success" of Cash for Clunkers that they're readying Cash for Clunker
Appliances. The ludicrous "stimulus" bill gave
$300 million to the Department of Energy to provide rebates for 10 types of
appliances that have been rated energy efficient.
Before government extends Cash for Clunkers to more products, it
might be a good idea to examine the original. The fact that Washington and
the buyers who took advantage of Cash for Clunkers are gaga is hardly
evidence that it was in the public interest.
It wasn't. As usual, the program has been judged only by its
first and most visible consequences, violating Henry Hazlitt's teaching in
his classic, "Economics in One Lesson":
"The art of economics consists in looking not merely at the
immediate but at the longer effects of any act or policy; it consists in
tracing the consequences of that policy not merely for one group but for all
If you only look at the immediate effects, Cash for Clunkers
appears pretty good. People traded in gas-guzzlers for more fuel-efficient
new cars. The program cut carbon emissions slightly and gave the auto
industry a boost.
"Manufacturing plants have added shifts and recalled workers.
Moribund showrooms were brought back to life, and consumers bought
fuel-efficient cars that will save them money and improve the environment,"
Transportation Secretary Ray LaHood bragged.
"American consumers and workers were the clear winners thanks to the Cash
for Clunkers program."
But wait. Shouldn't that be some consumers
and some workers? And only in the short run?
Let's start at the beginning. The government paid car owners to
trade in their old cars, which will be destroyed. But the government is
running a deficit. So it doesn't have $3 billion to hand out. It must borrow
the money, which reduces the amount of money for other investments.
Moreover, the government must raise taxes in the future to pay back the
principal and interest -- or the Federal Reserve will monetize the debt
through inflation. Either way, we pay.
That isn't all. Those car buyers were either going to trade in
their used cars soon or they weren't. If they were, Cash for Clunkers simply
moved up the schedule. The stimulation of the auto industry occurred
earlier. Big deal. But if buyers planned to keep their cars longer, the
program imposed costs that are less visible. Without the government
incentive to buy cars, consumers would have bought other things --
computers, washing machines, televisions. The manufacturers and sellers of
those products didn't get to make those sales. Why should the auto industry
get privileges at the expense of others?
Then there are the mechanics who would have serviced those used
cars. They've lost business. Some will be laid off. Nor should we forget
low-income people who depend on the used-car market for their
transportation. The cheap cars they would have bought were destroyed.
What about the alleged environmental benefits? Assuming that
cutting carbon emissions is worthwhile, was Cash for Clunkers helpful? It's
hard to see why. People who traded in inefficient cars for efficient ones
will likely drive more and therefore use more gasoline.
Even if carbon emissions are cut by a lot, economist Christopher
Knittel says the program will cost more than $365 per ton of carbon saved.
Economist Bruce Yandle points out what a lousy deal that is:
"The much celebrated Waxman-Markey cap-and-trade carbon-emission control
legislation estimates the cost of reducing a ton of carbon to be $28 when
done across U.S. industries. Yes, we are getting carbon-emission reductions
by way of clunker reduction, but we are paying a pretty penny for it".
Finally, there is something revolting about the government
subsidizing the destruction of useful things. It reminds me of the New Deal
policy of killing piglets and pouring milk down sewers to keep food prices
Leave it to politicians to think we can prosper by obliterating