Jason Kuznicki makes some very good observations. Noting that the destruction of cars – if it were ever to generate wealth – would only be the first among many goods we could destroy to generate said wealth, he writes:
No, the appropriate course would be to generalize, and to destroy all goods in exchange for government scrip. Then we could play Monopoly, I guess, for what all good the money would do. But we’d have to scrape a board in the dirt to do it.
That’s because money isn’t wealth. Money is at best a measure of wealth, which actually consists of goods. Money retains its value as long as there are goods to be traded for it. When the goods disappear, the economy grows poorer, regardless of how the money is shuffled around.
And the payback isn’t long in coming — today’s used car prices are soaring owing to reduced supply. (This link gives even more dramatic numbers, but I’m less sure of them. h/t Radley Balko.)
See how that works? You can’t get something for nothing. Cash for Clunkers turns out to have been a highly inefficient wealth-transfer program, that is, one that destroyed a bunch of wealth along the way. It gave wealth to those already relatively wealthy people who did the government’s bidding (that is, those who could afford to part with a used car and buy a new one). And now it’s taking wealth from those relatively poor people who need a used car today — in the form of higher prices.
Along the way, it destroyed hundreds of thousands of cars — that’s the real wealth these poor people don’t have access to anymore, because the scrapped cars aren’t a part of the economy.
On top of being a renter, I’m also a used-car buyer. When Cash for Clunkers was implemented I went to check out what I could get for my own clunker (which still drives fine, by the way), and everything was out of my price range. However, a ‘99 Honda CRV was affordable enough, so we got that instead, from a private seller. A new one would have cost about four times as much even with the government credit.
Meanwhile thousands upon thousands of used vehicles like my “new” ‘99 CRV were traded in and destroyed, artificially inflating the cost of used cars by diminishing their supply and likewise artificially bolstering the demand for new, expensive cars. This is a fairly obvious transfer of wealth from the poor and working class to the middle and upper class. Whatever stimulative effect it may have had, it was also an act of destruction and a temporary fix for car dealers and automakers at the expense of low-income consumers. I’m all for stimulus, but let’s keep it productive. Let’s build things with our stimulus dollars, not destroy them.
Breaking windows is no more economically sensible than blotting out the sun to protect candlestick-makers. If we want to create jobs with tax dollars let’s at least get to work patching up our dilapidated infrastructure or investing in a new, better infrastructure of the future. We’ll leave fewer casualties in our wake.