Frédéric Bastiat once wrote that "the worst thing that can happen to a good cause is, not to be skillfully attacked, but to be ineptly defended." Throughout his life, Bastiat contributed a great deal of forceful arguments in the defense of free markets and individual liberty. He is most remembered for his short treatise titled "The Law", while one of his other essays—"What Is Seen and What Is Not Seen"—often goes unnoticed.
Indeed, while his arguments in the latter work are well-reasoned and founded on solid principle, they remain either generally unknown or conveniently ignored. However, the basis of this essay is of vital importance to dismantling the incestuous relationship between the government and private businesses. Yet, this specific defense for free markets has not been skillfully attacked, but rather has been relegated to philosophic discussions of theory among economists and patriots who have ineptly defended it.
Bastiat himself clarified which type of economists should be defending these principles:
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Those who take into account the unseen and unintended consequences of economic actions must loudly and eloquently defend against such intrusions into the marketplace. Opportunities abound, since not a day goes by that the federal government doesn’t manage to continue or create poor policies that pretend to be helpful, but leave in their wake a long trail of suffering, unwise decisions, and lost liberty. The latest intrusion making its rounds in the public eye (though hardly the largest in terms of money being spent) is Cash for Clunkers.
This "successful" program has already handed out $1 billion to individuals looking for a reason to upgrade their vehicles. These “clunkers” are vehicles that get less than 18 miles per gallon and upon trade-in are destroyed and turned into scrap metal. The proposed benefits of this program are two-fold: first, that by offering incentives for people to upgrade their vehicles they will have a higher MPG efficiency and thus use less oil (thereby minimizing their “carbon footprint”), and second, that the languishing automobile industry will receive an infusion of (government-created) cash through the purchase of new vehicles (thus helping clear an accumulating supply of unwanted new vehicles).
One economist has articulated why these reasons both fall on their face, concluding with this summary:
Government policy should not favor some industries at the expense of others, but that is exactly what cash for clunkers does. The program helps consumers who can take advantage, and it increases profit and employment in the auto industry. But funding for the program comes from all other taxpayers, so it harms the consumers and industries not supported by the program.
Thus cash for clunkers creates winners and losers based on political considerations, not economic values. Whether or not government spending is a good way to stimulate the economy, the specific kind embodied in this program is misguided because it distorts the economy’s allocation of resources across consumers and industries.
The government’s near-perfect (through long experience) sleight of hand must be recognized for what it is; good economists naturally set aside the stated benefits and look for the effects that this $4,500 incentive has on car owners, car manufacturers, and the economy as a whole. Instead of focusing on the personal economic benefit (distorted though that reality truly is) of a select few, it is imperative that these government-created distortions of natural market exchanges be scrutinized from beginning to end. Only then can we adequately weigh the proposed benefits of a program (ignoring that obvious fact that this and nearly every other economic incentive is un-constitutional) and understand what its effects—all of them—might actually be.
Cash for Clunkers is not about giving out $1 billion to 0.075% of the population in order to get them to destroy their functioning cars and buy new ones from companies whose lobbyists are persuasive and powerful. Rather, it is about the allocation of money that would have been spent in other (likely more productive) ways, or saved. It is about the government continually spending money it does not have, and it is about a handful of political appointees thinking they are wise enough to outsmart Adam Smith’s invisible hand. And it is about constant distortions in the marketplace which so warp our market reality that people out of habit and long experience base their economic decisions on opportunities to game the system and save a few dollars—without questioning who is subsidizing their purchase.
Every government program that regulates, taxes, subsidizes, or otherwise controls private economic exchanges will have unintended consequences. Bad economists will find data and reasons that support the government’s wild claims, and continually shift their opinion based on whatever the latest trend happens to be. Good economists, on the other hand, challenge these propositions and demonstrate the oft-ignored downside to each new program. Naturally, the good economists are pushed to the fringe by politicians and their friends whose predictions and assertions are threatened by such contrarian arguments. But they cannot launch an effective attack on these sound ideas, and so they strive to make them unpopular and ultimately ignored.
If good economists do not rally together and more convincingly publicize their ideas, Cash for Clunkers will be a pittance compared to other and larger economic stimuli thrown to money-hungry Americans, and chained to the backs of their yet-born offspring. That any unintended consequences exist at all for such programs should be reason enough for every concerned citizen to at a minimum demand more debate and discussion before adding on new government spending to an already-large pile of federal debt.
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