Libertarian lawyer Manny Klausner writes to comments on a Wall Street Journal piece that lambasts the Cash For Clunkers program. He writes, It's hard to say anything positive about "cash for clunkers" -- no matter what your political preference. As the Wall Street Journal concluded in its brief, but instructive, editorial below, this was "One of Washington's all-time dumb ideas." Read the editorial, and ask yourself how confident you are that the far more ambitious health care bill wouldn't turn out to be a "cure" worse than the disease . . ..

The piece is a brief but excellent analysis that identifies the underlying fallacy of the program...The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.

The Wall Street Journal piece is reprinted in full beneath the 'jump' -- click on [Read the rest...] -- but I want to make an additional comment. It is not merely new car sales that are suffering by having had demand artificially pushed forward by an artificial incentive. Used car dealers are also suffering as are used car buyers because the widespread destruction of working older vehicles has depleted the market...thus raising both the cost of a used car (at auction or elsewhere) to the seller and, so, the price he passes along to the buyer. (See. Wall Street Journal article entitled "Used-Car Dealers Feel 'Clunkers' Pinch.") It made no economic sense whatsoever to destroy a valuable asset...but it made environmental sense -- as long as you buy into the Global Warming hype. And that, I believe, is the ultimate underlying reason why many of the so-called economic programs are being pushed by the Obama administration. Not for any economic advantages but in order to resculpt society so that it better expresses their societal/political ideal. A nightmare of an ideal, of course.

The full article recommended by Manny ensues....

October 4, 2009, Editorial
Clunkers in Practice: One of Washington's all-time dumb ideas.

Remember "cash for clunkers," the program that subsidized Americans to the tune of nearly $3 billion to buy a new car and destroy an old one? Transportation Secretary Ray LaHood declared in August that, "This is the one stimulus program that seems to be working better than just about any other program."

If that's true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use." Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.