This post is one in a series entitled Posthumous Refutations. Previously in this series: The Starvation Brink, Victorian England, and the Santa Claus Principle.
Christina Romer, chair of the President Obama’s Council of Economic Advisers, is beaming with pride in the Wall Street Journal over Cash for Clunkers purportedly being “successful in boosting demand and job creation”.
Meanwhile, Saturday Night Live’s hilarious version of Chinese President Hu Jintao is rather less enthusiastic about the program.
INTERPRETER: And this “Cash for Clunkers” program- I have read that you purchased many clunkers with our money.
OBAMA: Yes, we have.
(Hu Jintao “speaks.”)
INTERPRETER: What does this word “clunkers” mean?
(Hu Jintao “speaks.”)
OBAMA: Well, a clunker is a car…
(Hu Jintao “speaks.”)
INTERPRETER: I know what a clunker is. And just so there is no misunderstanding, you are not allowed to pay us back in clunkers.
OBAMA:Of course not.
(Hu Jintao “speaks.”)
INTERPRETER: You know, as I listen to you, I am noticing that each of your plans to save money involves spending even more money. This does not inspire confidence.
Elated at the revolutionary discovery that if you offer people free money, they take it, Romer is now floating an even more harebrained idea.
One idea is to give direct incentives for homeowners to retrofit their homes to improve energy efficiency. This approach would be convenient and certain, and it could encourage millions of homeowners to make cost-effective investments they might not have done for years, if ever. It could help both stimulate the manufacture of retrofit products and increase construction employment.
This plan is being called “Cash for Caulkers” (I kid you not), and it is being promoted by John Doerr, the Silicon Valley venture capitalist, and former President Bill Clinton. Rahm Emanuel, President Obama’s chief of staff has said of President Obama and the plan, “It’s one of the top things he’s looking at.”
But wait, I, Grayson Lilburne know how to rescue the economy! I call it “Cash for Cranks”. The government will give free money to dot-com investors, former presidents, and central bankers for coming up with half-baked schemes for rescuing the economy. These schemes will actually worsen the economy, thereby increasing the demand for more half-baked schemes to rescue it, which will in turn create more employment for more cranks. The schemes of these new cranks will worsen the economy yet further, which will increase crank-demand yet further, and so on. This virtuous cycle will continue to spiral until everyone is an economic crank, which means 100% employment! Then we can really say, “We are all Keynesians now”.
One can only sigh, “Professor Mises, take it away“:
People expatiate on alleged government encouragement of production. However, government dies not have the power to encourage one branch of production except by curtailing other branches. It withdraws the factors of production from those branches in which the unhampered market would employ them and directs them into other branches. It little matters what kind of administrative procedures the government resorts to for the realization of this effect. It may subsidize openly or disguise the subsidy in enacting tariffs and thus forcing its subjects to defray the costs. What alone counts is the fact that people are forced to forego some satisfactions which they value more highly and are compensated only by satisfactions which they value less. At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.
While government has no power to make people more prosperous by interference with business, it certainly does have the power to make them less satisfied by restriction of production.
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{ 8 comments }
Christina Romer: “[...] give direct incentives for homeowners to retrofit their homes to improve energy efficiency. [...] it could encourage millions of homeowners to make cost-effective investments they might not have done for years, if ever.”
If they were truely cost-effective, people would have already done them. “Sure, but they have more pressing needs and limited funds.” So in other words, they have even more cost-effective things they can do with their money. How, then, will taking money from everyone and only giving it back if they do these less cost-effective things with it help their situations?
The main scheme is Cash for Bankers.
ALL of the government’s various programs are just variations of Cash for Bankers.
What about Cash for Political Allies?
Oh wait, that’s 90% of current government.
“government dies”
love the typo
Reason TV has a couple of good videos poking fun at this nonsense:
http://www.youtube.com/watch?v=_LcYZxGdY8U
http://www.youtube.com/watch?v=Js_1_BD2on4
Though I agree with some of the criticism of the programs, I just wanted to point out that it isn’t always true that those taking advantage of government programs are receiving no blame. The fact that the government can create harmful distortions in the market using programs like Cash For Clunkers suggests that many people generally make decisions based on personal and short-term benefit, rather than on the logical result of everyone else pursuing similarly selfish strategies.
We don’t seem to blame those who take part in the government’s interventions for doing so selfishly, even though their abstention would prevent any harm caused by the policy itself.
Is it ok to take advantage of these government incentives in spite of the wider consequences?
If it’s wrong, then are we asking people to think and act in the best interest of society at a cost to themselves? If it’s ok, then are we implicitly denying the free will of those who take advantage of the programs selfishly?
@Ribald: sorry, you’re viewing it the wrong way: the reason the government can give money to that portion of the population that is willing to take it (because clearly, not everyone lowers themselves to that level) is because of raw physical coercive power.
In a non-coercive situation, that portion of the population wanting hand-outs and willing to deceive others would hold little sway and be outmanoeuvred economically at almost every turn.
Calling this (“Cash for Caulkers” ) a great idea is an insult to one’s intelligence.
Why?
It has a far lesser chance to succeed (at what cost is another issue altogether) than Cash for Clunkers as replacing cars is done sooner than later .. so why not a little sooner when you are going to get paid for it ..
if Cash for Clunkers is such a great thing then all auto companies should be singing all the way to the bank
I suggest this is what will happen ..
Demand side of the equation …
Demand for weatherisation products will go up …
People who would have done the weatherisation project now will get a subsidy of $2000
People who had planned to do the weatherisation project later will prepone their plans to time it with the subsidy of $2000
Some people who were not interested will do it for the subsidy (less likely)
Supply side of the equation ..
Assuming that the present supplies are inadequate, prices for the weatherization product will go up
Seeing this, additional capacities will be created to cater to the new demand
creating additional capacities needs money .. raise a loan from the bank (if you can … easier because it is a government program)
Additional jobs will be created in the industry
Since this demand will have to be fulfilled immediately, need for capital goods for producing the products and qualified people in that industry will go up
Temporary hiring will increase as demand is only till the time program runs..
This will create higher wages for the temps..
This will increase the price of the product
The program will end …
Demand falls..
All the temp would be sacked..
Bank loans cannot be repaid
INDUSTRY (AND THERBY THE BANKS) GET BAILED OUT BY THE TAX-PAYERS
What has been acheived?
Subsidy provided (COST TO TAX-PAYERS)
Demand brought forward
Increase in prices
Temporary increase in employment
Bailout
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