Wednesday, March 3, 2010

Cash for Appliances = Another Broken Window

"Cash for Appliances" (shockingly) had exactly the same result as the failed "Cash for Clunkers" program.  People lined up to essentially receive a subsidy handout for a good or service.  Here's a quote:
"Expected to last for two weeks, Cash for Appliances ran out of money in just seven hours. That's all it took for Iowans to grab their share of $2.7 million in federal funding. Many Iowans were greeted with a busy signal or a failed connection when they tried to get a deal on Energy Star-certified appliances. By 3:00, the website said the fund had already run dry."
The evidence as stated above is an example of what happens when the government (through central planning policies) tries to allocate resources and "stimulate" demand.  What the "laymen" should understand and focus on is the law of unintended consequences.  The program cost $2.7 million dollars.  What taxes will need to be raised in order to fund people buying such products they would not buy if the products were not subsidized by someone else?  What future economic growth will be impaired to give people a quote "free lunch?"  What will happens to the supply chain allocation or distribution when the subsidies run out?

These are the REAL issues that people should focus their attention.  Instead, we will be told what a "success" the program has been since it ran out in less than a day.  Everyone will focus on the so-called "stimulus" effect of demand that was created.  Yet, we know this gimmicky corporate/social welfare and free-lunch subsidy to the appliance manufacturers and consumers is not sustainable and will do MORE harm than good according to the law of economics known in many circles as "the broken window fallacy."  We are ignoring the essence of opportunity cost and buying into this Keynesian nonsense of stimulating aggregate demand by throwing a rock at the window of one sector of the economy (present/future) to reward or give a handout to another.  This creates no net gain, prosperity, or wealth production for the macro economy other than propping one industry at the expense of one to many other industries, tax payers, or economic sectors.

1 comment:

  1. I just wanted to add a comment here to mention thanks for you very nice ideas. Blogs are troublesome to run and time consuming thus I appreciate when I see well written material. Your time isn’t going to waste with your posts. Thanks so much and stick with it No doubt you will definitely reach your goals! have a great day!