The Broken Window

“…instead of having both a window and a suit he must be content with the window and no suit.” -Henry Hazlitt

I don’t like to overwrite about this topic, but few Christians write about economic issues. This Cash for Clunkers program announced by the government is just too rich to pass up. It is a classic example of Bastiat‘s “Broken Window Fallacy.” This fallacy was restated concisely by Henry Hazlitt. If you understand the Broken Window Fallacy, you’ll understand the majority of the economic errors made by the government. In fact, Hazlitt’s classic Economics in One Lesson should be read by every child and adult. It should be read by elders and deacons. It helps you to understand how to think about economics.

Cash for Clunkers allows people to take in their old cars to a dealership in exchange for a maximum $4,500 credit toward a new, more fuel-efficient car. The old car must be crumpled up and destroyed. People take an old car that likely works and is likely paid-for and affordable, and exchange it for a new car that costs a lot more money. Most people will go into debt. They won’t be able to purchase something else. They won’t be able to save and invest the money that they spent on a car (I haven’t looked at car prices, but I’ll bet they are going up as a result of this policy, much like college tuition or anything else subsidized by the government). After each transaction, the government goes that much further into debt and society as a whole has one fewer, functioning car, and as a result is that much poorer. It’s a persistent fallacy that prosperity comes through destruction (e.g “World War II got us out of the Depression!”). Need I go on?

The media reports on this numbskull plan as if it’s a pretty swell idea. It’s working! Look at all the people in the showrooms! In reality, Cash for Clunkers is really nothing a handout to political interests (car companies and unions) and a bone for thoughtless consumers. It’s corrupt corporate welfare. It is an attempt to “goose” one sector of the economy. Since sales will fall off if it is discontinued, expect it to continue for a long time. The government doesn’t have any money and is going further into debt to pay for this handout. Its costs, like all the other debt the government is taking on, will be paid through the debasement of the dollar.

When you hear of a government program like this, it’s wise to ask questions like: Does the government have the Constitutional right to do this? What does it cost? How will it be paid for? Does it really benefit everyone or just a small number of people? What powers is the government assuming, and will it lessen my political and economic freedom? The last question is particularly important to get us beyond looking at immediate self-interest (“hey, I need a car, this is great!”). It’s easy to be corrupted by the state.

Everyone complains that the government spends too much and bureaucracies overregulate us. They do this inch by inch, program by program.

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