Small Business Against Big Government

On August 3rd we told you exactly what would happen with the Cash for Clunkers Program and why.  Now economic data and the Wall Street Journal have confirmed our prophecy prediction.

SBABG on August 3rd.

Cash For Clunkers is an economically unsound program that will only make the American economic situation worse.  It transfers wealth from one group of people to another while simultaneously destroying real wealth and misallocating scarce capital away from its best use.

To understand why this is, you need only understand the Broken Window Fallacy.

Today at the WSJ.

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.

Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

How were we able to predict this?  Because we read Bastiat, Hazlitt, Mises, and Hayek.  And when approaching an analysis of a proposed political solution to a problem, we employ a secret weapon that cannot be found in Washington DC – common sense.

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