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Claude Frédéric Bastiat was a nineteenth century French political and economic philosopher. In his famous work titled That Which is Seen and That Which is Unseen, Bastiat sets up the parable of the broken window. The lesson of the parable is that the destruction of capital only hurts economic growth instead of helping it. This is due to the fact that money is only spent replacing the destroyed capital instead of purchasing newer capital. However, those who supported the Cash for Clunkers program have clearly never learned this important economic lesson because now we are seeing the repercussions of that program.
In 2009 the government spent $3 billion tax payer dollars in order to destroy “clunkers” to incentivize citizens to purchase new cars, in the hopes of jumpstarting the failing American car companies. In these troubled economic times people are holding on to their clunkers or simply buying used cars because they can’t afford to purchase a new one. This combined with the governments destruction of approximately 680,000 used cars has caused the price of fuel efficient used cars to go up 20% since January reports Kelly Blue Book.com. This senseless destruction of used cars has also caused the price of a 3 year old used car to go up 4.5%, used premium compact cars to increase by 20%, and has caused price increases in every other used car type with the exception of SUV’s according to Edmunds.com.
These types of government sponsored destruction programs are the cause of failed Keynesian economics. Those who support these Keynesian policies believe that the government can save us from all of our economic worries. However, what history has shown us is that when the government gets involved in the economy resources get misplaced or misused and the end result is further economic troubles. In this case when the government sought to “stimulate” the new car market, the end result so many of us are finding out is a scarcity of used cars and an increased price tag on the ones we can find.