Cash for Clunkers Made the Nation $1.4 Billion Poorer

So says the Wall Street Journal:

According to Hudson Institute economist Irwin Stelzer, at best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use." Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work. Under the program, auto dealers were required to destroy the car engines of trade-ins with a sodium silicate solution, then smash them and send them to the junk yard. As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them.

Sales at dealerships nationwide have tanked following the end of the program. It's clear that pretty much all it did was shove demand forward, but didn't actually create any new demand. The demand that was used up in August won't be replaced in coming months, and that means lean times ahead for the auto industry.

And, of course, the used market was hit hard too since hundreds of thousands of quality used vehicles were destroyed rather than be put on the used car market.

Cash for Clunkers was another typical liberal feel-good program, loaded with good intentions, but in the end causing more trouble than it prevented.