Wednesday, August 5, 2009

Cash for Clunkers

The Cash for Clunkers program reminds me of Bastiat's parable of the Broken Window from his essay on What is Seen and What is Not Seen. Cash for Clunkers destroys something that is working and replaces it with an equivalent thing of greater value. That greater value is where the Clunkers program diverges from Bastiat in a pernicious way. Here's an excerpt from the parable:
Have you ever been witness to the fury of that solid citizen, James Goodfellow, when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: "It's an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?"

Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.

Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs' worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.

But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.

Let us next consider industry in general. The window having been broken, the glass industry gets six francs' worth of encouragement; that is what is seen.

If the window had not been broken, the shoe industry (or some other) would have received six francs' worth of encouragement; that is what is not seen.

And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.

Now let us consider James Goodfellow.

On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.
In the Cash for Clunkers case, today's car buyers are enjoying a better car at the expense of future generations and the cost of used cars is increased at the margin as the clunkers are scrapped. The program taxes our children and grandchildren while making used cars more expensive for those that can't afford a new one—often the lower middle class and poor.


The Missouri Record said...

Claude Bastait?! To support your argument on 'Cash for Clunkers'?! In a blog?!


Anonymous said...

As part of the economic stimulus, "Cash for Clunkers" is performing as expected by increasing new car sales and removing some less-safe, higher polluting cars from the roads.

What evidence is there that used car prices have increased?