More CARS Nonsense

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Edmunds.com released a report several days ago suggesting that each incremental car sold during the CARS program (that it, sales that would not have occurred anyway) cost taxpayers $24,000. I’ve seen the analysis and it’s probably as good an estimate as any.

The White House challenged the Edmunds report earlier today, the details of which you can link to at www.autoobserver.com. There are a number of fallacies in the White House document, but one caught my attention.

According to a report issues by (Obama’s) Council of Economic Advisors, the CARS program will create 70,000 jobs in the second half of 2009. This claim would be laughable if it weren’t serious. Such a claim is shortsighted economics at best, and deceptive at worst.

Simply stated, government subsidies that temporarily increase demand for a product don’t create any jobs in the long run. Perhaps one could argue that automakers, suppliers, and related firms will need to hire more workers to meet the increase in demand. This might be partially true if cars purchased during the program would not have been purchased anyway, sooner or later. This is an especially weak argument, however as carmakers will hesitate to increase long term production because of one month of induced sales increases.

This type of Keynesian analysis also leaves out an important fact. When consumers spend MORE on one product, they spend LESS on another. If jobs were “created” in the auto industry because we spent more on cars, then weren’t they destroyed in various other industries where we spent less? The government central planners counter this argument by stating that consumers didn’t really spend less on other products because the government incentive picked up the difference. Even if partially true, the $2.8 billion spent on the program is TAXPAYER MONEY anyway. Sooner or later we will lose $2.8 billion of purchasing power because of this program, either through increased taxes or reductions in the value of the dollar should Washington simply print the bills. Those who accept this reality might still argue that something needs to be done to address the economy NOW because as Keynes said, “in the long run we are all dead.” But at a cost of $24,000 per car, it’s hard to argue that CARS did anything but squander $2.8 billion of taxpayer funds.

By the way, it’s time we start thinking about the long run. Decades of short term thinking—and a heavy dose of it this year alone—has piled up $12 trillion in debt. The average American family is already on the hook for about $100K of it. How much more can you bear?

3 Comments

3 Comments

  1. Nutmeg State Conservative  •  Oct 29, 2009 @6:54 PM

    And I heard that the $8000 first time homebuyer credit has cost everyone $43000 a piece and is being extended into next year! Brilliant!! This has to stop now Dr.!

  2. McAlister  •  Oct 30, 2009 @6:21 AM

    AMEN! GOVERNMENT HAS NEVER CREATED A NON-GOVERNMENT JOB EXCEPT BY GETTING OUT OF THE WAY.

  3. Bob7  •  Oct 31, 2009 @6:45 AM

    If the government really created all of the jobs the liberals claim it did over the years, then we’d already have more than enough and we wouldn’t have to keep creating more! This entire notion is an insult to my intelligence.