Monday, August 24, 2009

Broken windows theory in action: Cash for clunkers!

BRIAN WESBURY applies the "broken windows" fallacy to Cash for Clunkers:
The basic problem with cash for clunkers is that it uses the old “broken windows” theory of economic activity. Everyone who lives in a hurricane zone knows that typically people are never busier than right after a major storm. Roofs need to be replaced, while damage to vegetation, glass, power lines, boats, etc., all require overtime to repair. All that activity gets counted in GDP.
But everyone also knows the storm was a bad thing, destroying property that was built at a cost in the first place. Sure, everyone is as busy as a beaver, but they’re just busy replacing what they had, not actually improving their standard of living.

1 comment:

alex said...

This critique would be excellent if the program had been sold as economic stimulus. Although some pols may have pitched it this way to their constituants, the goal of the program was to remove inefficient vehicles from American roads. It was still an awful plan because 1) the required increase in fuel efficiency was small to the point of insignificance, 2) it was market distorting transfer of wealth, and 3) the Govt. can't afford it, we're broke.

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