The rambling thoughts of a Modern Orthodox Chassid (whatever that means). Contact me at emansouth @

Tuesday, August 25, 2009

One of the Dumbest Ideas of All Time, II

The Destruction of Wealth

Uncreative Destruction
By the Editors (National Review)

When we talk about government policies destroying wealth, we usually mean taxes that shift money from efficient to inefficient uses. Rarely do we mean the deliberate destruction of valuable assets. Yet, thanks to the Cash for Clunkers program, which ground to a halt yesterday, we now have a visual aid to help with this abstract concept. Mechanics tasked with destroying the so-called clunkers have been posting the videos on YouTube, often muttering in anger as they fill the engines of perfectly good Corvettes and Cadillacs with sodium silicate and then run them until they self-destruct. The goal of the Cash for Clunkers policy is, literally, the destruction of wealth.

To get a sense of how much value the program has destroyed in its short lifespan, keep an eye on used-car prices, which are expected to skyrocket as dealers see their inventory sacrificed to Washington’s green gods. Look also at the 12 percent decline in used cars donated to charity. This is to say nothing of the extra use their owners could have gotten out of them if the government hadn’t subsidized their destruction.

In addition to flushing tangible assets, the program has destroyed wealth in other ways. First, it has added $3 billion to the deficit, which will have to be taxed out of the productive economy at some point. That’s money that won’t be saved, invested, or spent on other goods and services. Second, the $3,500–$4,500 vouchers for new vehicles only covered part of their cost. Buyers covered the rest by borrowing or spending their own money. Some of these buyers would have purchased a new car anyway, but other car owners spent money on new cars they didn’t need because of this policy. These consumers had less money to spend on other consumer goods last month, as reflected by worse-than-expected non-vehicle retail sales. Cash for Clunkers robbed from the taxpayers and the rest of the economy to pay Detroit and a few hundred thousand new-car buyers.

Now that the program has become a furnace for taxpayer cash and an administrative nightmare, Transportation Secretary Ray LaHood wants to declare victory and go home. We should deny him peace with honor. He says the program was a success because it boosted new-car sales and helped out the struggling auto industry. This “stimulus” argument is the only leg the program’s defenders have to stand on, as most have conceded that Cash for Clunkers will provide little to no environmental benefit.

The stimulus argument is bunk, too. As mentioned above, the program “boosted” new-car sales by encouraging consumers to direct their money away from other economic uses. One could counter LaHood by noting that the program depressed other kinds of sales and investments. Also, the boost in sales is partially illusory. Car dealers expect their dealerships to turn into ghost towns once the program ends.

As for the “struggling auto industry,” eight of the top ten selling vehicles under the program were Japanese brands. Cash for Clunkers helped Detroit, but most of the money went to subsidize sales at companies that didn’t need help. The Japanese automakers make cars in the U.S., but their non-union workforces helped them avoid the catastrophic cost-structures that doomed Detroit.

In the end, though, one returns to the footage of mechanics pouring liquid glass into the engines of drivable cars and destroying them. There is no better symbol for what happens when the government takes over large swaths of the economy. It is an important image to keep in mind during the health-care debate: We may not get death panels, but we’ll definitely get sand in the gears.

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  • At 1:43 PM, Anonymous Bob Miller said…

    The destruction of the clunkers was just their way of making the program look like something good for the environment.

    Instead of giving handouts through the dealers of one type of consumer good, it would have been better to lower marginal tax rates and give everyone a chance to invest or spend the extra money as they so chose. However, this government wants to maximize its intrusion into the economy and minimize individual choice about everything.

  • At 9:16 PM, Anonymous megapixel said…

    this article really highlights the idiocies of the entire program. I wish everyone would read this.

  • At 9:22 AM, Blogger and so it shall be... said…

    I went to YouTube to see some of the videos mentioned in the article about mechanics' disgust with having to purposely destroy perfectly functional cars.

    The videos made me feel physically ill and reminded me of Mao's "Great Leap Forward," in which idiotic, poorly-planned schemes to force progress led to devastating famine, horrific environmental destruction, and the death of millions of Chinese.

    Is "Cash for Clunkers," for the raging case of unintended consequences is will undoubtedly trigger, just the ideological descendant of the Great Leap Forward?

    If the media continues refusing to report the moral, economic, and environmental lunacy of this abominable program, I'm afraid this is just the tip of the iceberg.

  • At 11:47 PM, Anonymous Anonymous said…

    Agree with your post-but the waste of taxpayer dollars doesn't begin to compare to that wasted on the "bailouts" to the finacial industry.

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