the real cost of "cash for clunkers"

Remember, it's not just the billions we're paying.  It's the lost wealth of everything that will not come to be as a result of those billions, and the lost wealth of every perfectly driveable car that gets scrapped prematurely in the bargain.

As economic ideas go, this nonsense ranks right up there with paying farmers to burn crops and slaughter livestock.  We should hope this program is not extended much longer.

Comments

[Ragnar]

Oh it's with us for a while - through September 30, 2010...

The additional $2,000,000,000 they are rushing through the house right now is to be "transferred" from the DOE Innovative Technology Loan Guarantee Program - a program intended to help car companies make more efficient vehicles in the future.

I can only assume getting these horrible clunkers off the road is more important than research.

[PJ]

The Friday news release irony: The media has figured out that the stimulus money isn't being used to fix the failing bridges across the country after all. The bright side: Thanks to this additional $2 billion all the ravines won't be full of horrible clunkers when the infrastructure does literally collapse. All the new sidewalks I've noted in my travels must be intended for the truly efficient vehicles of the future..foot traffic..

[EddieWillers]

This should be required reading for all Keynesians.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

[Ben in Boston]

I actually have less of a problem with the CARS program than other of the stimulus junk. The difference is the window is already broken. We have thousands of huge gas guzzlers on the road right now, and it helps us as a political matter to become more efficient. (Note that I'm not arguing this from the pagan tree-hugger perspective.) Research does have the potential for greater long term benefit, but getting the old cars off the roads helps us now.

[John Galt]

The window is not "already broken." These perfectly functioning cars are being rendered undriveable -- and therefore less valuable -- as part of the program. Real wealth is being destroyed, not to even mention that it's all being subsidized by money which was supposedly taken to fund constitutional government.

There's absolutely NO reason to believe those taxpayers wouldn't have done something even more stimulative (and 100% more honest) with their own money if they'd been permitted to keep it.

[Ben in Boston]

But they are permitted to keep it. Give me a break. The government isn't going in and ripping the money out of people's pockets to replace their old cars. Taxes have yet to be raised to pay for the program, so people are keeping their money. The government has just decided that borrowing money to invest in getting old cars off the road is a good idea. (Fiscally, it's not a good idea to borrow to invest, but that never stopped the government before.)

And it's not "lost wealth". If you look up even the Blue Book of most of these cars, I bet you'd find that the $4500 bonus makes up most of the value of the car. The government is just making it easier for people to convert the car into wealth if they want to buy a new car.

I guess what I'm saying is this: compared to pouring money down a hole like most of the stimulus, this is better. Not good, but better.

[John Galt]

"I guess what I'm saying is this: compared to pouring money down a hole like most of the stimulus, this is better."

Giving someone $4500 that he didn't earn, to buy a new car with, is not better than allowing someone else to keep $4500 that he might otherwise have to pay in taxes. The government runs exactly the same deficit either way, and the same people are going to end up paying it back. But where that money goes is much different, as is the amount of good the money goes on to do. In one case, the person spending the money has a stake in it, and in the other he does not.

And if a car is worth fewer dollars after its engine is disabled (as all of these are), then the difference represents destroyed wealth. That money is, as you described, "down a hole." It's still insane.

[Ben in Boston]

"And if a car is worth fewer dollars after its engine is disabled (as all of these are), then the difference represents destroyed wealth."

No, the $4500 payment is replacing the value of the car that would otherwise be lost if it was just sent to the crusher. You can rightfully argue that the money could be spent better (and I'd agree with you), but saying that wealth is being destroyed here is nonsense.

Further, the concept of someone "keeping" their $4500 is crying over spilled milk. The government already had the money in the sense that they didn't raise taxes to get it. Taxes very rarely go down, only up.

[John Galt]

"No, the $4500 payment is replacing the value of the car that would otherwise be lost if it was just sent to the crusher."

Negative. Money is not wealth; it is paper. It's not the product of work; it's just something governments print. You cannot replace something of actual value with money.

If you give someone money for a car that they didn't earn, then you make cars more expensive for people who actually earned their money. And, of course, somebody somewhere must do work to pay for this person's car -- work that's supposedly taken for legitimate government.

Furthermore, if you take things of value -- like functional automotive drivetrains -- and reduce them to scrap metal, then you have destroyed actual wealth. Period. Everyone looking for a used car will now have their choices reduced by the amount of the destroyed vehicles -- and they will ultimately pay more for the cars they do end up getting. It's simple supply and demand.

[John Galt]

Also:
"Further, the concept of someone "keeping" their $4500 is crying over spilled milk. The government already had the money in the sense that they didn't raise taxes to get it."

If the government resolved to run the deficit, then it could also have done so by simpling lowering tax rates. Such "stimulus" would have gone where markets value it the most, instead of going to where politicians must actually bribe people to spend it.