Sunday, August 9, 2009

My thoughts on Cash For Clunkers

Everybody is buying cars! The economy is SAVED! They saved us!

Yeah. Really quickly, over half the cars purchased under this program are foreign. And some reports go as high as 80% foreign. Not so good for Detroit. But then the auto unions made that bed.

So, for the cost of 10 dollars (so far) out of the pocket of every man, woman, and child in this country. A few people get to drive around in brand new cars. And we get to get these old clunkers off the streets.

Old clunkers off the streets...

Everybody does know that these trade ins are REQUIRED to be destroyed? No salvaging serviceable spare parts from them. No reselling on the used car lot. But that's a good thing right?
Lets see. Yesterday we had; a new car, 4500 dollars and a used car. Today we have; a new car and 4500 dollars. Wait, what happened to the asset that was the used car. Oh right, it's been destroyed. Our government is forcing us to destroy our assets. This smacks of our government forcing us to be poorer and maybe even more dependent on them. Socialism anyone?

Also, has anybody looked at the used car price index in the last few weeks? That's right, skyrocketing upwards.

And this destroying something to stimulate the economy kept poking me on the shoulder, trying to tell me something. Finally, I remembered. Lucky you, because now I get to show you. Yeah, it's like slide shows of family vacations! Only more boring and even more unsettling.



Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented


Henry Hazlitt in his book Economics in One Lesson does a much better job at explaining this corollary to The Law of Unintended Consequences. Go read it.

This is exactly what the Clash For Clunkers program is doing. It's destroying one thing and trumpeting it as a success because it had to be replaced. Never mind that if that thing, a car in this case, hadn't been destroyed the money could have been used somewhere else, to buy something else. Never mind that most of the benefits are going to help overseas car manufacturers. The 0bama administration can point and say "We DID SOMETHING."

We've created a new government program. Of course this one is temporary. As temporary as the TVA. That's all that this has done really. Any bets on whether or not the funding becomes a standard line item on next years budget proposal?

What if instead of $4500 for every clunker, the government had given the auto manufacturers just a $450 dollar tax break for every new car produced? What would have happened then? We'd still have that used car around to resell. The auto companies would have had that much more money to hire more people, buy more modern or just plain more equipment to build cars. Those new jobs would have generated all sorts of spending by the people in them. The MSRP of those new cars would have been lowered because now the cost to produce them would be lower. Lower new car prices makes them more affordable and to a greater portion of the populous. Used car lots aren't starved for inventory and they stay open. The possibilities... Feel free to add other reactions to that action in the comments, please.

But what do I know, I'm just an guy with a degree in aerospace engineering, the training to be a professional pilot and the ability to analyze whats happening to this country and weep.

1 comment:

Harman said...

The process takes equity out of the economy. Net worth is equity plus cash. Therefore, they're shuffling around money they already had to hurt the economy.