The Broken Clunker Fallacy

Shikha Dalmia has an article in Forbes detailing the hidden costs of the Cash for Clunkers program.

Some excerpts:
One, even if one accepts LaHood’s numbers, the fuel savings add up to only 72 million fewer gallons of gasoline every year–about what Americans consume in four and a half hours. This translates into 700,000 tons fewer carbon dioxide emissions annually–about what Americans emit every 57 minutes. …

the program might severely disrupt the ability of the used-car market to recycle parts, producing all kinds of negative unintended consequences for the environment. (Where is the green obsession with recycling when you need it?) The engine, combined with the drive train, accounts for about 35% of the value of the used car. But with this destroyed, it will make far less sense for recyclers to incur the cost of cleaning up mercury and other toxins to mine the remaining parts from the discarded vehicle. The upshot is that the car is more likely to land in scrappage with many valuable parts–engine, pistons, brakes–still intact. …

So, to recap, the Cash for Clunkers plan involves restoring the economy by destroying wealth and healing the environment by destroying resources. By this logic, we should use the stimulus money to fund a new Godzilla brigade to mow down the country and rebuild it in a more environmentally friendly way. Imagine how much richer and cleaner the planet would be.

This is about as classic an example of the broken window fallacy as you can imagine.

It’s a program built around a theory of economic stimulation that was debunked in 1850.

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2 thoughts on “The Broken Clunker Fallacy

  1. I agree with your thoughts. Cash for clunkers is also hurting charity car donation since many of the cars being turned in for a voucher and junked would hve been donated to charity. The charity would scrap those in poor condition. Thosein good condition would either be given to the working poor or sold with the charity using the proceeds to help fund their mission.

  2. All government programs have hidden costs. It’s almost always easy to see who the “winners” are in any given program, but it’s almost always more difficult to spot the losers: the usually much larger collection of people who will find themselves squeezed by the unseen effects of govt. action.

    In this program, the winners are auto manufacturers. The losers are poor and lower-middle class families that will discover a tighter used-car market and apparently a reduction in charitable donations.

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