08.11
This “Cash for Clunkers” program has got to be the most classic example of the broken window fallacy I’ve ever seen. If you don’t know what the broken window fallacy is, I’ll explain it. It’s the faulty logic that would lead one to believe that intentionally braking something is actually an economic good, because it drives spending to fix the repaired object. It was first put into this wording by the great free-market philosopher Frederic Bastiat. Here’s how he layed it out:
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen.
If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.
Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.
When we arrive at this unexpected conclusion: “Society loses the value of things which are uselessly destroyed;” and we must assent to a maxim which will make the hair of protectionists stand on end – To break, to spoil, to waste, is not to encourage national labour; or, more briefly, “destruction is not profit.”
What he’s saying here is plain. Intentionally rendering something useless, or wasting money on useless things, does not in any way profit the economy. As David Gordon puts it, it doesn’t create a new revenue stream. It diverts a portion of existing revenue to cover the replacement cost. Thus it robs a person the use of that money for the thing he intended it to go to. That’s why damaging someone’s property requires restitution. On a moral level, it’s wrong to deny the person the use of their property. That also includes the preclusion of that person’s property in the form of money that was intended to be spent on something else, but now can’t be.
On an economic level, it’s just simply illogical to waste money on something that carries no value. It may benefit one sector of the economy, but it does so by robbing from another sector in kind. This simple moving of capital from one market to another is not investment. It has no hope of a return, and it wasn’t produced by market guidance, such as rewarding good investment. It’s purely a matter of expense with no return. What’s done with the money that is spent, after it gets into the hands of others is a crapshoot. They may do good things with it. They may not. Who knows.
So with all that said, I give you “Cash for Clunkers”:
My blood boiled as I watched this video. This is the insanity of government. Destroying, not just a perfectly good car, but a really nice car. Now, nobody will get the use of this car ever again. What an absolute waste of resources. How many people out there driving around in cars that can barely run would have killed for a car like that at a cheap price. Crap, they could’ve given it away. But no. Here we go again with this insane notion that keeping prices high, and destroying perfectly useable resources is going to somehow “stimulate” the economy. Whatever that means anymore.
Critical listening on this subject:
Economic Reasoning: The Most Common Fallacies:
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Critical reading on this subject:
