Tuesday, August 04, 2009

A Clinker About Clunkers

My friend David points to a piece of malignant wrong-headedness from a publication that usually knows better. The topic is "Cash for Clunkers:"

What's especially dispiriting is that this lesson was taught more than a century and a half ago by French economist Frederic Bastiat.

A shopkeeper's window was broken by a little boy, which made for extra business for the glazier who fixed it. Extended to the ultimate, breaking every window in town would be the ultimate windfall for the glazier. The town's income statistics and tax revenues would record a gain.

But the town would be worse off. Their old windows would be replaced with new ones, perhaps more energy-efficient, but the shopkeepers and homeowners would be out the cost of the new windows.

Modern macroeconomics turns this loss into a gain, especially if the government pays for the new capital goods. Gross domestic product is expanded by the government expenditures. The cost is buried, and if paid with by new borrowings, not felt by anyone.


There is a perfectly good response here. That is: if the continued presence of the car on the road would cost more than $4,500, then it makes perfect sense to pay to take it off the road. It's the same logic the landlord uses when he pays the holdover tenaxnt to get the hell out of the apartment, even though he might have the right to kick him out. It's cheaper in the long run.

I'll grant this much: I don't think I've heard anybody on either side of the issue try to approach the issue on this basis (I suppose there is a white paper somewhere, but it certainly hasn't made it to prime time). And this also: I'm not sure in my own mind whether $4,500 is the right price.

You don't get a hint of this in that cute little Bastiat anecdote. I guess I should grant also that maybe Bastiat did not get the point, but I'm, reasonably certain that the author of the Barron's piece does know better, and for Barron's to print it is an insult to the reader's intelligence.

1 comment:

chrismealy said...

Grrr. I hate it when people drag out that condescending Bastiat or "Fable of the Bees" stuff. It's only ever rightwing ideology -- nobody brings up Khaldun's views on depreciation and capital theory (not that anyone should, either).