‘Cash for Clunkers’ Program Has Many Hidden Costs
By Seth Grossman, Political Columnist
Reprinted from August 5, 2009 Current and Gazette Newspapers.
Last Friday, the U.S. House of Representatives voted 298 to 119 to “suspend the rules” and pass HR 2751, the “Consumer Assistance to Recycle and Save Act”. If the Senate and President agree, our federal government will spend two billion dollars more than the billion approved two months ago. This money will buy and destroy roughly 600,000 SUV’s, pick-up trucks, and cars that get less than 18 miles a gallon. We are told that this is good for the environment, because their owners will buy new vehicles that are at least 4 miles per gallon more fuel efficient. Really? How much coal and oil will be burned, and how much toxic waste produced to ship, destroy, dump, and recycle 600,000 old vehicles, and produce steel, aluminum, and plastic for 600,000 new ones? Will gas saved by slightly more efficient new vehicles offset that? Nobody knows, because Congress never did the research.
We are told that this is good for the economy, since car manufacturers, dealers, and recycling centers will be busy and well paid to destroy and replace these vehicles.
Economist Frederic Bastiat debunked programs like this in France back in 1850 with his classic essay “What Is Seen and What Is Not Seen”. You can read it at www.econlib.org/library/Bastiat/basEss1.html. The essay begins when a delinquent child throws a rock through a window, which quickly attracts a crowd. Although outraged at first, most onlookers later conclude that events like this “stimulate the economy”. The owner will pay $600 to replace the window, the repairman will get paid and place an order with the glass factory, which will pay its workers, they will all pay taxes, etc. According to Bastiat, “That is what is seen.” But what is not seen?
In today’s terms, when the shop owner spends $600 to replace his window, he will not have that $600 to buy something else – like $600 for new winter clothes, a wide screen TV, a one week vacation, etc.
And as Bastiat said:
“If you look at the effect on the economy in general, it is clear that the glass industry gets $600 worth of encouragement. That is what is seen. But if the window had not been broken. . . some other industry would have received $600 worth of encouragement. That is what is not seen. . . we should understand that there is no benefit to the economy in general or to national employment as a whole, whether windows are broken or not broken”.
But there is a difference to the shop owner. After paying $600 to fix his broken window, he has nothing but the window. Had the window not been broken, he would have had both the window, and $600 worth of other stuff. Since the shop owner is part of society, Bastiat concludes that “society as a whole has lost the value of the broken window”.
Government spending of $3 billion to destroy 600,000 cars, trucks, and SUV’s has no different effect on the economy than paying people to break and replace windows. We see the happy faces of the auto executives, UAW employees, car dealers – and 600,000 families who are paid $4,500 for their old piece of junk (often banged up and not even running) worth less than $1,000. Ironically, many of these folks bought their old gas guzzling SUV’s and pick-ups in the first place because a Republican President and Congress gave huge tax breaks for buying these cars with the “Jobs Growth and Tax Relief Reconciliation Act of 2003”!
But we don’t see the worried and angry faces of 95% of the rest of us who will work harder and longer to pay for this gift to the other 5%. Some of us will pay directly through higher taxes. We will all pay more for everything we buy when the companies that make and sell the stuff pay higher taxes. And since the federal government is broke, and is borrowing that $3 billion, we will also pay the hidden tax of a devalued dollar – the price of gold jumped right after the House vote. And if you want to buy a cheap used car or truck, you will pay a lot more, because 600,000 of the cars you may want to buy will be destroyed.
Most Republicans voted against HR 2751. Most Democrats voted for it. But in New Jersey, 4 of the 5 Republican Congressmen, Frank LoBiondo, Chris Smith, Leonard Lance, and Rodney Frelinghuysen voted with the Democrats.
Mr. Grossman is Executive Director for Liberty and Prosperity. Liberty and Prosperity is now holding breakfast discussions at two locations!
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