Lots of folks are being hurt by the auto-subsidy program.
Gary Jason
The Cal State Fullerton instructor is a contributing editor of Liberty
The idea that we can stimulate an economy by destroying things (and thereby creating work repairing or rebuilding them) is a fallacy common and antique enough to deserve a name. It is called the "broken windows" fallacy, and was debunked in 1850 by the French politicial economist Frederic Bastiat.
The theory is that if a vandal smashes my window, there is a good result: A job is created for a contractor I have to hire to fix it. But as Bastiat observed, while the money I spend to fix the window will employ the contractor, had my window not been broken, I could have purchased, for example, some shoes. That would have employed a shoemaker, so there really isn't a net gain in jobs Moreover, had my window not been broken, I would have both a good window and new shoes, instead of just a good window.
But President Barack Obama apparently hasn't read Bastiat, because he pushed through a willing Congress a "Cash for Clunkers" program, under which people are given up to $4,500 to trade in older cars to buy a new one. Under this truly asinine program, perfectly functional used cars are taken off the road and destroyed, creating work for autoworkers to make new cars. And the numbers are not trivial: We blew through $1 billion and destroyed a quarter-million used cars in the first couple of weeks. The Congress has approved another $2 billion, and the program may get renewed endlessly.
We are beginning to see the unintended negative consequences of this daffy deal.
The first is the one Bastiat indicated. The $3 billion being spent to destroy useful cars and buy new ones for a relatively small number of people will come from other taxpayers. That means that the other taxpayers =96 the ones stiffed on this deal =96 have $3 billion less to spend for the things they would have liked to buy, so commensurately fewer workers outside the automotive industry will be employed. Moreover, the stiffed taxpayers will have fewer things that they wanted.
The second unintended consequence is ironical. The program essentially deprives workers in nonautomotive industries of work in order to employ more people in the automotive industry, but that is proving problematic. Owners of independent auto repair shops are complaining of lost business =96 the work they would have had keeping those used cars running. So while some workers in the auto industry may have kept jobs building new cars, other workers in a related industry are losing their jobs repairing old cars.
And the automobile "aftermarket" of auto parts stores, repair shops, body shops and so on is a big industry =96 $250 billion a year and employing 4.6 million workers.
The irony here is not lost on the auto aftermarket people. Bill Wiygul, a repair shop owner, asked a reporter, "How do we get on the special-interests, special-treatment bandwagon? How much is it going to cost me and to whom shall I send the check? Who picks the winners in this game 'cause obviously the game is fixed."
Who picked the winners in this rigged game? A fellow named Obama. You will need to send a check to him. How much does it cost? The UAW and other unions gave Obama millions during his campaign, so you'd better be prepared to dig deep, amigo.
But in reality, the game is now closed. Since Obama nationalized GM and Chrysler he simply can't allow them to fail.
There is a third unintended consequence of the clunkers program. By destroying something like three-quarters of a million used cars, inventory that would normally be sold on used car lots, the prices of used cars are being driven up. Alec Gutierrez, senior market analyst with Kelley Blue Book, estimates that this program will raise used-car prices by 5 percent to 10 percent. So poor folks will find buying a car harder than ever