Sunday, August 9, 2009

Clunkers, Winners, and Losers

The "cash for clunkers" program is popular, but that's because we are only celebrating the program's winners.

There are losers, too. Lots of them. Nothing in Washington happens without somebody losing something.

To paraphrase the old truth about poker, take a look around Washington and spot the sucker. If you can't, you're it.

Here's how the program really works:

Auto rental companies
Auto dealers
New auto buyers
Scrap metal dealers

Automobile mechanics
Tire stores
Automobile parts dealers
Low-end used car buyers

In the final analysis, it is not clear that the benefit to the winners is greater than the cost to the losers. In fact, what has probably happened is a zero-sum transfer of money from one group to another.

Moving money around creates a lot of excitement, especially for the receiver. But this kind of excitement is not prosperity. It is the illusion of prosperity, creating a Potemkin village in a land left poorer for the effort.

Rather than create the appearance of prosperity by rushing money around from one place to another by decree, we should rely on the boring but effective policy of simply leaving money in the hands of those who made it in the first place. Let them decide where to spend it.


r.delaney4 said...

The "Cash for Clunkers" is the ultimate example of what Bastiat referred to in his essay "What is seen and what is unseen." Breaking a window, as Bastiat wrote about or destroying a vehicle as the government is doing now to facilitate economic activity leaves society as a whole short the amount spent. In the case of "Cash for Clunkers" it is more dangerous because it is using borrowed money to pay for it and the costs of running the program.

Ben Asa Rast said...

Absolutely right.