The Corner

Bastiat’s Clunker

Jason Kuznicki revisits cash-for-clunkers.

No, the appropriate course would be to generalize, and to destroy all goods in exchange for government scrip. Then we could play Monopoly, I guess, for what all good the money would do. But we’d have to scrape a board in the dirt to do it.

That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it. When the goods disappear, the economy grows poorer, regardless of how the money is shuffled around.

And the payback isn’t long in coming — today’s used car prices are soaring owing to reduced supply. (This link gives even more dramatic numbers, but I’m less sure of them. h/t Radley Balko.)

See how that works? You can’t get something for nothing. Cash for Clunkers turns out to have been a highly inefficient wealth-transfer program, that is, one that destroyed a bunch of wealth along the way. It gave wealth to those already relatively wealthy people who did the government’s bidding (that is, those who could afford to part with a used car and buy a new one). And now it’s taking wealth from those relatively poor people who need a used car today — in the form of higher prices.

Along the way, it destroyed hundreds of thousands of cars — that’s the real wealth these poor people don’t have access to anymore, because the scrapped cars aren’t a part of the economy.

And this is what passes for a successful government program.

As for the Bastiat reference see my old column here.

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