Cash for Spelunkers

One of the things that drove me to my pro-free market values? Stuff like this, in which the Secretary of Transportation declare cash for clunkers a success. His reasoning is that it gave money to the auto industry (which is still underwater to the tune of tens of billions) and benefited the environment (which is dubious: the intrinsic environmental cost of a new car may not be offset by gains in fuel efficiency). So it’s a win-win, at least according to the Secretary.

Lahood’s claim, however, is a classic illustration of the broken window fallacy. 700,000 cars — a couple of billion dollars in assets — were taken out and destroyed. That is a loss of economic value which can now be seen in the sharp rise in prices on the used car market. That rise is going to take money out of the pockets of people on the margin who can not afford new cars. And the program isn’t old enough to see if we’re going to have a wavelet of car loan defaults from people who Cash for Clunkered themselves beyond their means.

But it’s frustrating. Because the rhetoric is all on the side of LaHood and our media are too ignorant or too slavish to ask the right question. As I said, it’s the broken window fallacy: the difference between what is seen and what is unseen. What is seen are the new cars flying off of lots. What is unseen are the cars being destroyed, the people being priced out of the used car market and loan defaults in a year or two.

Update: Another illustration of the point. The Climate Crock of the Week guy has his own crock this week about wind power. While I’m positive about wind power, you simply can not do a video about it and ignore the massive subsidies wind power involves and the net economic loss it has produced for countries heavily invested in it (link). Seen: a big wind industry. Unseen: massive subsidies and job losses. Green jobs have become the ultimate Broken Window. I predict they will be next bubble that will produce an economic crash.

Again, to be clear — I’m positive on alternative energy and, as I’ve made clear, realistic about global warming. Peter Sinclair is great at knocking down BS anti-AGW arguments. But this video illustrates that everyone has their blind spot. For someone who delights in breaking myths to make a video that is nothing more than a commercial for the politically powerful and heavily subsidized wind industry is appalling.

And utterly human.

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