25 August 2010

That Which is Unseen

Great little post here. Very good stuff regarding cash for clunkers:

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

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.

And this is what passes for a successful government program.

No comments: