The Broken Glass Fallacy

Posted by Marc Hodak on August 18, 2009 under Economics, Invisible trade-offs | Be the First to Comment

As anyone who has studied it knows, Cash for Clunkers program doesn’t accomplish any of its stated goals.  It does not materially reduce energy consumption because the difference between the mileages of the cars getting traded in versus the cars getting bought does not account for:

– The fact that the net difference in energy use and carbon dioxide emissions, etc. must more than outweigh the energy needed to build the new car, which includes mining the basic materials, transporting them to the factories, running the assembly plant, etc.

– The fact that one is likely to drive a high-mileage car with less concern for energy because it’s more energy efficient.

Once the environmental rationale gets swept away, then we are left with two items.  One of them is:  Even if it doesn’t help the environment, at least it creates jobs.

Wrong.  The $15,000 used to replace perfectly good “clunkers” with new cars is money that could have been used to buy other stuff–1,000 nice steaks, 2,000 peach cobblers, 5,000 romantic candles, etc.  The money you spent on a car is no longer available to the butcher, baker, and candlestick maker, which impoverishes them and the people selling to them about as much as it enriches the auto makers.  And because the cash-for-clunkers program represents a centrally planned, non-market allocation of resources, 11 or 12 B-B-CM jobs may easily have been destroyed for every 10 auto jobs created.  The difference, of course, is that most of the 10 jobs were union jobs in plants one can point to, whereas the 11 jobs destroyed were at dispersed bakeries, paraffin processors, etc. around the country–those that are not seen.

So, once the ‘environmental’ and ‘jobs creation’ rationale gets swept away, we are down to one:  It gives the sponsors of the bill the ability to funnel taxpayer money to preferred union constituents.