NYT Forgets Econ 101
The New York Times’ Matthew Wald has a very decent article on the Senate’s approval of $2 billion in new funding for the Obama administration’s Cash for Clunkers program. His August 6 Senate Adds Cash to ‘Clunkers’ Plan article reports:
The Obama administration has been arguing that the savings on gas spending would offset costs, and that the stimulus to the economy would be another benefit.
Wald does a good job questioning the environmental benefits of the bill quoting transportation expert and researcher Lee Schipper who points out, “The new car doesn’t replace the clunker, it replaces the previous first car in the family.” But Wald then leaves Obama’s stimulus claims unchallenged. As Heritage’s Nick Loris points out, French economist Frédéric Bastiat refuted Obama’s stimulus claims more than one hundred years ago:
In effect, cash for clunkers is a classic lesson in Economics 101: What Not to Do. It’s sadly reminiscent of Frederic Bastiat’s broken window fallacy, except that instead of breaking windows to “stimulate the economy,” we’re destroying perfectly good cars.
[I]f 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.