Sunday, while riding, I had an entrepreneurial idea which I’m also almost certain occurred in abundance in the cash-for-clunkers boondogle. This enterprise would most likely be best employed by a car dealer, perhaps one who put his bottom line ahead of his “patriotic duty.” Imagine a car dealer has a potential customer who wants to buy a new car, yet has no clunker to turn in. Here is a way in which that most of that $4.5k windfall could aid that person in buying a new car. He follows the following steps:
- The initial ingredient is a person (person A), willing to buy a car with the help of $3.5k cash-for-clunker money in the absence of said clunker.
- First, locate a person (B) who owns a qualifying “clunker”, i.e., not-so-good gas mileage and has owned it for two years.
- Offer that person an exchange/upgrade car + $1000, which of might be used toward the purchase of said “upgraded” clunker.
- That same said person is “lent” the money is then (on the books at least) used purchase the new car that the person A wants and is purchasing.
- Person B then “sells” car A (for a song and as agreed) to person A.
- Person A drives off with his car, which cost $3.5k less than negotiated originally.
- Person B drives off with a “new” used car. His original “clunker” is then turned to sand.
- The car dealer makes his commission on two cars (one used and one new).
If you don’t think this occurred with some frequency over the summer, you haven’t noticed that this is America … the land ruled by enterprising hucksters. The $1k/$3.5k split of course is illustrative and would vary in proportion as the market dictated. I’ll leave it as an exercise for the reader to defend this practice … or suggest how/why it is not possible given the current law. While it certainly violates the spirit of the law, I’m pretty sure a half-way competent lawyer could see a way to making it fit the letter of the law.
The Cash-for-clunkers hornswoggle has educated Americans in a practical lesson in Bastiat’s Parable of the Broken Window. This paradox/parable is one which the Keynsian’s would like to whitewash with talk of multipliers and other such nonsense, but the essential argument is largely untouched by that rhetoric, i.e., for the multiplier to be considered it is essential that the hidden costs implicit in their multiplier be ignored. The parable as recounted in the wiki piece above, excerpted is:
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented
This is the problem with the clunker. The taxed money which will be extracted from the public will not be able to be used for the various purposes to which they would have used those monies for, instead it is taken and used in this way. Very often that same said clunker gets just a few mpg more than the car it replaced, which then is scrapped … and the energy costs of production will take many years to recoup … so the net energy/pollution equation is likely for almost a decade … a loss in many if not most cases. Furthermore today, in the wake of cash-for-clunkers, we hear that the used car market is not difficult right now. The price of used cars is up and the availability of cars is down. There are few cars available … due to so many having been having silicate added to their engines. One might ask which whether the used car vs new car consumer is better or worse off financially relatively speaking in order to review who has been helped and who has been harmed by this policy.