lunatic economics

Charles Krauthammer, on the cash-for-clunkers business (via NRO):

Well, it is very popular. It’s an artificial stimulus drawing from the future [demand] into the present. I don’t think it will have any real effect in the long run other than the temporary stimulus.

But at bottom, it’s bizarre economics. We’re paying people ā€” what we’re forgetting is that all of these cars, tens of thousands of clunkers, are going to be turned into scrap. And the question is why? America is going to be destroying tens of thousands of perfectly usable cars, destroying essentially American assets.

A parody of Keynesian economics is to say that you pay half the population to dig holes and the other half to fill them in. This is worse, because we’re paying people with the bribe of cash to destroy huge numbers of assets. Why not put them on tankers, ship them into the third world, and get the cash for cars and parts?

So what you are doing is destroying a whole set of assets and replacing them. That’s going to be stimulative for a week or two or three, but in the end, it’s lunatic economics.

Just so. It also, as I wrote the other day, puts minimal environmental gain against human needs not met: in this case, the very important need for folks to have a car.

Sorry, all those who live on tofu, wear Birkenstocks, and bicycle to and from the coop in Cambridge, Mass. or Madison, Wisc: here in the real world we need to get to work and back.

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