This spending-creates-wealth theory is at the heart of much current economic policy, including cash for clunkers. But it's a giant fallacy; Bastiat reminded us to remember the unseen effects, too.
The shopkeeper is now poorer, and instead of buying a new refrigerator, he must now buy the replacement window. So the glazier's gain is the appliance-maker's loss.
The government was supposed to have the program activated on July 1, for a period estimated to last until Nov. 1. Instead, federal administrative glitches held up the commencement until July 24, and funds were almost exhausted after one week. This from the same federal government that spent $425 billion on Medicare in 2009 after assuring us that the program would never exceed more than $5 billion per year back in 1965
Overall, cash for clunkers is another lesson in how a bureaucratic economy operates, one which denizens of European welfare states and their 30 percent lower standard of living know all too well.
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