Unintended clunker consequences

Lots of folks are being hurt by the auto-subsidy program.

Gary Jason

The Cal State Fullerton instructor is a contributing editor of Liberty


The idea that we can stimulate an economy by destroying things (and
thereby creating work repairing or rebuilding them) is a fallacy
common and antique enough to deserve a name. It is called the "broken
windows" fallacy, and was debunked in 1850 by the French politicial
economist Frederic Bastiat.

The theory is that if a vandal smashes my window, there is a good
result: A job is created for a contractor I have to hire to fix it.
But as Bastiat observed, while the money I spend to fix the window
will employ the contractor, had my window not been broken, I could
have purchased, for example, some shoes. That would have employed a
shoemaker, so there really isn't a net gain in jobs Moreover, had my
window not been broken, I would have both a good window and new shoes,
instead of just a good window.

But President Barack Obama apparently hasn't read Bastiat, because he
pushed through a willing Congress a "Cash for Clunkers" program, under
which people are given up to $4,500 to trade in older cars to buy a
new one. Under this truly asinine program, perfectly functional used
cars are taken off the road and destroyed, creating work for
autoworkers to make new cars. And the numbers are not trivial: We blew
through $1 billion and destroyed a quarter-million used cars in the
first couple of weeks. The Congress has approved another $2 billion,
and the program may get renewed endlessly.

We are beginning to see the unintended negative consequences of this
daffy deal.

The first is the one Bastiat indicated. The $3 billion being spent to
destroy useful cars and buy new ones for a relatively small number of
people will come from other taxpayers. That means that the other
taxpayers – the ones stiffed on this deal – have $3 billion less to
spend for the things they would have liked to buy, so commensurately
fewer workers outside the automotive industry will be employed.
Moreover, the stiffed taxpayers will have fewer things that they
wanted.

The second unintended consequence is ironical. The program essentially
deprives workers in nonautomotive industries of work in order to
employ more people in the automotive industry, but that is proving
problematic. Owners of independent auto repair shops are complaining
of lost business – the work they would have had keeping those used
cars running. So while some workers in the auto industry may have kept
jobs building new cars, other workers in a related industry are losing
their jobs repairing old cars.

And the automobile "aftermarket" of auto parts stores, repair shops,
body shops and so on is a big industry – $250 billion a year and
employing 4.6 million workers.

The irony here is not lost on the auto aftermarket people. Bill
Wiygul, a repair shop owner, asked a reporter, "How do we get on the
special-interests, special-treatment bandwagon? How much is it going
to cost me and to whom shall I send the check? Who picks the winners
in this game 'cause obviously the game is fixed."

Who picked the winners in this rigged game? A fellow named Obama. You
will need to send a check to him. How much does it cost? The UAW and
other unions gave Obama millions during his campaign, so you'd better
be prepared to dig deep, amigo.

But in reality, the game is now closed. Since Obama nationalized GM
and Chrysler he simply can't allow them to fail.

There is a third unintended consequence of the clunkers program. By
destroying something like three-quarters of a million used cars,
inventory that would normally be sold on used car lots, the prices of
used cars are being driven up. Alec Gutierrez, senior market analyst
with Kelley Blue Book, estimates that this program will raise used-car
prices by 5 percent to 10 percent. So poor folks will find buying a
car harder than ever

 

Wait unitl you see how much a used engine will be costing in the near
future now that they have been fried. Same goes for rebuilts as the
blocks are no more.

 

I have posted about the "broken window" false economy before (before the
current administration).

It seems that a lot of people in Congress - on both sides of the aisle -
have such weak minds and a poor understanding of economics (it's taught
as a fallacy in econ 101 pretty much everywhere) as to think it is a
good economic theory, but it is especially strong among union supporters
and those who believe in redistribution of wealth. No doubt, *many*
people, though they have never had such a theory explicitly explained to
them nor would they recognize it by name, would understand the concept
and tell you they believe in it. And that is unfortunate because they vote.

 

Though economic growth in excess of losses is exactly what occurs after
most natural and man-made disasters.

 

A few thousand people in New Orleans might disagree with you on that.
Politics aside, seriously (I know we have our differences) - how can you
really believe that destruction increases overall wealth and quality of
life? Yes - some are certainly enriched by any disaster, but overall,
wealth has to be decreased. And certainly to base a political
philosophy for improving people's lives on such theories is just wrong.

 

It's widely studied and understood. Google "economic resilience" and
"disaster".

The Katrina exception is a manifestation of the prior administration's
incompetence.

 

Hah! Never mind. You're hopeless.

So you actually do believe in the "Broken Window" fallacy of economics
in general (Katrina being an exception of course).

President Bush didn't cause Federal money that had been provided to New
Orleans to enhance the levies to be used for local feel good projects
instead.

 

Some questions for you:
(1) Should California be rewarding the people who set the fires (instead
of trying to find and prosecute them)? Are the fires a way of
stimulating California's economy - lots of doors, windows, lumber,
labor, etc. will be used to build new houses.
(2) Should Obama be reimbursing insurance companies for all the fender
benders and actually paying incentive payments to people who have
accidents that don''t cause injury or death? After all, by the "broken
window" and liberal logic, fender benders help the economy.

Oh - and for answering the above questions, assume a Democrat is in the
white House - after all, we know that the "broken window" theory is only
negated when a Republican is in the white House. When a Democrat is in
the White House, anything bad that happens is good for everybody - by
the "broken window" theory of economics.

Are you going to tell us that the broken window theory of economics only
works when it is applied in controlled doses? IOW - how big of a
disaster should we all be praying for to stimulate the economy without
doing damage to it? Have the "experts" who believe in the "broken
window" theory come up with the cross-over point in their calculations?

And are these the same "experts" and "scientists" who have been selling
us on "Global Warming" all these years (and have now changed the name to
"Climate Change" because even they can't lie to themselves any longer
that the earth is on a warming cycle)? How long does Obama figure he
has to *not* mention Global Warming™ so that he can introduce a plan on
Climate Change™, figuring that enough people will have forgotten that
the claim was for the earth warming over that period of time?

 

The problem with your analysis is that it's just one of many possible
theories and there is no more proof for your's then for any of the
others. The total economy is too large and interconnected to be sure
of much of anything being the result of anything else. Many people
believe one of the biggest factors in having a good or bad economy is
the mental state of the players. If everyone things the world is
ending and stops buying stuff it slows down the economy. The point of
the C4C as far as I'm concerned was to get some money circulating and
improve the mental state. Does it impact other markets? Sure. Will
the repair shops have a problem? Maybe, but maybe not since just a
few weeks ago the "experts" were saying how much more business they
would have due to people keeping their old cars and fixing them. Since
there are many many millions of old cars in the country, it's unlikely
that the C4C is eliminating ALL that new work.

 

It also reduces employment in the oil/gasoline business.
The crushed vehicles burned more fuel than those that replaced them.

Those who resisted this deal and kept their oldie gas guzzling vehicle,
may find it's value has slightly increased, due to a shortage of the
bigger vehicles crushed.

 

You can propose whatever outliers you choose, and you can study them.

The topic has been widely studied, understood and is settled. Google
"economic resilience" and "disaster".

 

OK - so you're on record as believing in the "broken window" theory of
economics, and that when it comes to fixing an economy, governments
should operate on the broken window philosophy.

 

And you're a wingnut. There, it's settled.

 

Exactly. The reason the government should be hands off if they don't
know the results of major things they are about to do with my money.
Unintented consequences. That's why free market, with all its warts,
works better than any economy micromanaged by a government.

Certainly true. So, did all the "stimulus" money to the banking
industry get new projects and construction going again? Are they
lending money? Or was it money wasted? My point about government
micromanaging having the worst effect.

I understand the reasoning behind it. But it's just wrong to transfer
my money to someone else on that basis. It's all payback to unions.

 

There's something like 300 million vehicles on the road, maybe twice
that. Do you really think taking several hundred thousand of them off
the road (and replacing them with an equal number of new ones) is
going to have any meaningful effect on used vehicle prices?? At most,
it might add $100 to the average cost of an old vehicle. Big deal.

 

The Katrina exception is a manifestation of the prior administration's
incompetence.

I don't believe it was a manifestation of the prior administration's
incompetence is entirely true despite the fact that; Having seen and
witness first hand Hurricane Katrina I know first hand what the problem
were. Money was pouring in left and right from both the Government and
private sector. There were two many officials from the state, local and
federal government and no one was coordinating because they all want to be
in charge. Our babbling Governor Blanco at the time could not lead a horse
to water prior to Katrina and surely could not handle the pressures of this
disaster.

The biggest issue I see with the recovery is the residence in the New
Orleans area want the government to give them everything. Many other areas
besides New Orleans was destroyed and many have recovered over 90 percent
without the governments help. There is still sections of New Orleans where
houses have been left abandoned because the owners want someone else to
rebuild it for them for free.

 

Now that's not PC !! Some people won't be able to handle the truth.

 

I can just see a huge amount of Buick Electra 225's, 455 V-8's running
around on the road. Maybe we will see people bringing their old 70's
cars out of hiding and driving them again!

 

Note to self.... new peak in .net stupidity achieved, 9/6/09, 8:40PM.

 

No it doesn't. It just reduces (so negligibly as to be un-quantifiable)
their sales to consumers, and shifts more sales to mining, raw materials
transportation, ore refining, and other production processes.

Have you actually READ the list of "most clunkered" vehicles? Nothing
collectible there. Some very good inexpensive, reliable, basic
transportation, but nothing collectible.

NOTHING good came of that program. Not one iota.