The fact that you have repeatedly asserted that this is not an example of the Broken Window Fallacy does not mean that it is not an example of the Broken Window Fallacy, y’know. 
No, the fact I asserted it doesn’t make it so. The fact that it isn’t an example of it makes it so.
The program is effective because it is primarily designed to stimulate the economy since we are in recession. Each dollar spent adds something like $1.70 to the economy.
So the government spent $4500. As a result, your family spent something around $25k they wouldn’t have. The program acted as a nudge to make them spend the money they have, but maybe didn’t want to because of the recession.
So $30k was spent give or take. Because of the multiplier effect it added over $50k to the economy. Which makes the program so successful it literally is hurting my balls with how awesome it is.
I’ve seen a few people assert that it wasn’t the broken window fallacy, but no one gave any compelling reasons why it isn’t. In the first post you mentioned it, you just said it was “BS” with no more explanation.
It’s the broken window fallacy because the government is spending money (the value of the destroyed cars) which it could be spending somewhere else.
The broken window fallacy, as I recall, is breaking windows to drum up some glazier work.
This isn’t that because it’s voluntary. No one is breaking glass to drive up window sales. It’s offering a rebate to push people who want to buy a car into doing it because they’re being gun-shy due to the recession.
The only way it would be the broken window fallacy is if the government were destroying cars in their driveways.
So, by extension, paying for the Military is a broken window? Paying for roads? Policing?
That’s why the fallacy is inapplicable - you’re talking about the government here.
In a broken window situation, window glass is being replaced by more window glass, with no net effect on “wealth” (the scenario does not include multiplier factors either, btw). The Clunkers program, in terms of national aggregate wealth, replaces shitboxes with new cars, for a net increase in “wealth”. Any aggregate improvement in mileage represents a reduced rate of consumption of “wealth”, too.
Not that any of that underlies the primary reason for the program. Multipliers do exist. Keynesian measures are long proven in the real world.
OMG, I just came in from the field, I’m roasting and miserable but reading your post made me split my sides! I hope your balls get better.
As far as the economics of the thing goes, I think it’s a well thought out reply and I understand why so many people think this way. If the $4,500 had come from a tax credit, I would agree with you about stimulating the economy for exactly the reasons you listed, however, once you filter the money through the tax system you create a zero multiplier.
The government is giving people $4,500 but they only have that money to give because they took $4,500 from the populace - making the exchange, at best, a break even proposition and an unfair redistribution of wealth to boot. Government spending can be effective to stimulate the economy but only if it manages to outstrip the positive effect that the same dollar amount would have had if it had stayed in the private sector. In the case of this program, the positive effects are limited to the spike within the start and end dates of the program.
The economic gains of CforC are good but the same rules and the same $ amounts applied as tax credits remove government as a zero multiplier and create a long-term solution that is inherently fair. Only a very small number of people are able to take advantage of CforC as the program is already bankrupt despite cheery government projections.
At the end of the day, CforC is a lot more appealing to me than, say, the government takeover of GM. As someone said, my Auntie did get a new car out of the deal. Inefficient programs irritate me though, this one isn’t fiscally responsible and as my anecdote - yes I do understand it’s not data - illustrates, it’s possible for there to be no positive gains for the environment.
First, let me apologize as a Democrat for oppressing you by sending more customers your way.
How is it going? Do you think the people who bought cars because of the program would have done so in any case? Has it been driving more business to your dealership? It would be good to hear from someone in the trenches.
The position that the plan is a failure because it ran out of money more quickly than planned is just nonsense. If for the moment you grant that the people making this plan saw benefit from each sale, Running out in November meant they forecast the plan would create 60K additional sales per month. Compared to the 250K sales in two weeks or so, that is hardly cheery. Assuming you believe the money has a multiplier effect, spending $3billion is 3X as effective as spending a billion. I assume it was originally set at the lower number because of uncertainty that it would be spent.
Now let’s talk about tax credits. The average consumer, even if he can get a benefit from the credit, is not going to realize the benefit until he pays his taxes next April. He doesn’t have use for the money until then, and the stimulus may kick in after the recovery has started. Plus he might even be paying interest on the $4500 between now and then, which makes it even less effective. There is also the psychological benefit of a lower immediate price, which I’m sure drove traffic. Do you have an example of a tax credit plan with this kind of impact?
Yes, it is more like smashing the window and replacing it with a double pane window, which people do all the time, and might even get you a tax credit.
Give the CforC money back to the populace, all anyone is going to do with the $5 is buy a Happy Meal. You give money to your aunt and uncle, they don’t just spend the $4,500, they’ve spent $25,000+ and another guy spent $5,000, and a wrecking yard has a whole Tahoe to chop up for scrap. $4,500 generated $30,000+ worth of spending, 6% of which ($1,800) goes right back into government coffers as sales tax.
No, because in the C4C program, something is destroyed needlessly. The country is poorer by the amount of cars destroyed.
The folks I know that drive “shitbox cars” - another thing that had me chuckling - can’t afford a BRAND NEW car even with the $4,500 coupon, they just can’t. This program is rewarding an extremely narrow slice of the population with a zero multiplier on the front end and a short term economic spike on the back.
The only real winners are car companies - not dealers mind you, dealers are busy filling out the paperwork or navigating the online system that is apparently quite slow to reimburse or even approve deals already.**made
I’d like to know the cost of this program to the taxpayer. I’m not talking about the direct redistribution of tax dollars as CforC vouchers either, I’m referring to the government’s end of the “paperwork nightmare.” Did a lot of people get hired on a short term basis to handle processing the CARS program or did we pay a lot of existing employees overtime to do the job?
In either case I have to wonder if even the short term economic gains are thusly eliminated by the true cost of the program. Unfair, inefficient, criminally stupid. If they want to stimulate the economy through spending, this administration needs to administer huge tax cuts COMBINED with a spending freeze and severe budget cuts. Have we learned nothing from the previous administration? If you reduce taxes you must reduce spending otherwise we just end up with a larger deficit.
We need to stop electing lawyers and social engineers and start electing business people and economists. Until we elect a government that understands that the private sector is best suited to managing itself we are doomed to larger deficits and higher taxes, and arguably less freedom.
There is a net increase in wealth because the government has created new money and put it into the system. But something is also being destroyed. The wealth created is greater than the wealth destroyed, but a better plan would be one that doesn’t detroy at all.
By that rationale, every time there is a turnover of older capital for newer capital then we are poorer. The true way to say it is this:
Economic value of a car = benefits - costs
benefits = value from the car as a mode of transportation (personal valuation, really
costs = opportunity cost of the scrap metal potential of the car, environmental costs of the car, maintainence costs of the car, operation costs of the car, depreciation
Ideally this should be the resale, or remaining value of the car (note this is not the same as the amount remaining on the car loan).
So does the “clunker” have a larger net stream of value than the “new” car. Well it certainly depends on the two cars involved. I woudl harbor to guess that there are trade-offs on both sides of the ledger in this case.
Now this DOES not answser the questions about who should bear the costs. Just thye notion that captial stock is being destroyed and that is a bad thing.
Details of such a program, please. Are the clunkers to simply sit in somebody’s yard, while the owners drive their new cars instead, rather than be recycled into steel for new cars? How is that an improvement?
“Shitbox” is just the usual slang term around here (glad you like it). What do you call them where you live?
The ‘fiscal multiplier’ is the Laffer Curve of the left. Just like the right imposed the Laffer Curve to justify every tax cut, liberals are now invoking the fiscal multiplier to justify every government spending program, regardless of whether or not the conditions of the multiplier exist.
Suppose the government gave a $500 credit to anyone who had an old computer to purchase a shiny new one. Is that an increase in wealth, or a transfer of money to computer producers and purchasers?
What if it was a $10 credit to trade in ballpoint pens for superior fountain pens?
Reality vs. fantasy, friend.