by John F. Di Leo
There's plenty of precedent in American sports for a young boy, just learning the game, to break a window. Every Little Leaguer in the country, at some point, has probably come close, in a yard, park, or schoolyard, while practicing his skills to hit that glorious outa-the-park home run. When the glass shatters, as it sometimes will, his parents are called, cash is exchanged, and the boy learns his lesson: practice is good, but it's never worth it to damage other people's property.
One of the most effective tools in an economics professor's toolbox is the "broken window" fallacy, perhaps the best way of clarifying the difference between helpful and unhelpful economic activity.
Most famous thanks to the great Henry Hazlitt's classic "Economics in One Lesson," the story tells of the two reactions to an accidentally smashed shop window. The liberal rejoices that the shopkeeper must now buy a new window from the local glazier, giving him business, while the conservative laments that the shopkeeper cannot now spend his money on whatever he otherwise would have -- perhaps dinner at a local restaurant, books or gifts from another store, an evening at the theater, saving or investing more, etc. The unnecessary destruction of a perfectly good existing product may create business in one sector, but robs business from untold others.
"Cash for Clunkers" will be cited forever by economists as the very literal incarnation of this economic fallacy.
The concept of the trade-in has been a part of the car-buying process almost from the beginning. Before buying a new car, one uses his existing one as a downpayment toward that purchase. The dealer's valuation of that old vehicle has always been some magical average between its real resale value and the dealer's desire to cut a deal on the new one. While much of the modern economy has been semi-socialized (such as healthcare) or monopolized (such as most utilities), the car-buying process has been an example of the free market at work.
Once the transaction was complete, the dealer had something of value in addition to the money -- a car to resell on the used car market, to use as a loaner for repair customers, or to cannibalize for parts. It's all been part of the marketplace, keeping automobile ownership within reach of everyone, not just the upper classes. In America, even someone who couldn't afford a new car, even a "cheap" new car, could always afford some halfway-decent kind of transportation to get to and from work and school.
No more. President Obama, educated in the "melt 'em down" school of gun control, applied the concept of local Saturday Night Special buy-back programs to the auto industry. He identified vehicles he doesn't like -- chiefly, American-made SUVs, minivans, and luxury cars, maybe a few years old, maybe lacking the best gas mileage -- and offered to pay people to trade them in. Instead of getting the normal trade-in value of $500 to a couple grand for these vehicles, the buyer would be thrilled to get $3500 or $4500 from the government. Sounds delightful, doesn't it?
Not in the least. Instead of these used cars -- which still have plenty of life left in them, for the most part -- remaining in the marketplace for the poor and middle-class, or in the parts yard for people who need a used engine, fender, or door, the government takes them out of the marketplace entirely, to destroy them.
Brilliant. A debt-ridden government, with nothing but bankruptcy on the horizon for as far as the eye can see, is buying hundreds of thousands of vehicles -- to deliver to a hundred wrecking balls. Perhaps directly setting fire to billions of dollars of cash would have increased our carbon footprint too much, so they chose this approach instead.
The economy isn't creating enough new wealth, and they're compounding the problem by destroying what little remaining wealth we already have.
Of course, the Saturday Night Special buyback programs on which this is modeled aren't terribly good either, on balance. When cities hold these events -- paying people $100 or so for every old gun they may happen to have in the attic, to be melted down -- the theory is that it gets dangerous weapons off the street.
In fact, it more often rips off the foolish who don't realize their late husband's or father's firearm was worth much more than $100... or rewards the clever who turn in inaccurate, non-working old pieces for $50 to $99 more than they're worth... or worst of all, aids and abets the evasion of prosecution of criminals who turn in weapons used in crimes, and pays them $100 besides! You can't perform a ballistics check on a weapon that's been melted down.
"Cash for Clunkers" has all of those problems, and more.
1. It causes the government to burn up an asset, quite intentionally throwing away billions of our children's and grandchildren's tax dollars.
2. It removes valuable vehicles and used auto parts from the marketplace, raising the cost of entry of automotive ownership for the community of lower- and middle- income drivers.
3. It contributes to the negative PR of our own domestic product lines (because almost all the vehicles being named as "clunkers" are popular US brands like the Explorer and Caravan).
4. It enables foreign car manufacturers, particularly Toyota, Honda, and Hyundai, to gain a greater foothold than ever before in our marketplace (because the program's qualification rules are getting people who used to buy American brands to purchase foreign brands, often for the very first time). Not that they shouldn't have the right to earn that increased share in the free market if merited, but our government should hardly be a catalyst for it!
5. It removes a massive source of potential contributions from such charities as the American Lung Association, Kars-4-Kids, and the Boys and Girls Clubs -- the main source of income, in fact, for many branches.
Does Mr. Obama realize what he's doing to undermine our economy, our communities, our standard of living, our charities, and the reputation of our domestic brands, or is he just so singleminded on increasing our average "national fleet mpg" that he is blind to all else? Blind enough to sign the order to unnecessarily demolish hundreds of thousands of cars worth billions of dollars?
And do we honestly believe that a man can make it all the way to the White House without being bright enough to comprehend the practical result of his policies?
by John F. Di Leo, for the Illinois Review -- copyright 2009
John F. Di Leo is a Customs broker and import/export compliance trainer. A former county chairman of the Milwaukee County GOP, he has been a recovering politician for twelve years and three months.
