The Clunked and the Uncluncked


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Kurt Bouwhuis, Mackinac Center Interm

An article titled “The argument against clunkers goes clunk!” contained the image above and concluded with the following text:

“What’s the lesson here? Stimulating the demand side has an immediate impact on a sluggish economy. Now, can we finally put to rest the discredited idea that the best way to grow the economy is by cutting taxes on the wealthy and praying that the benefits will some day trickle down to the rest of us?”

If this program is truly as beneficial as the author of this piece claims, why not up the ante?  Instead of $2 billion, why not $2 trillion!?  This all goes back to the basic economic principle of opportunity cost.  Frédéric Bastiat describes this principle best in his short piece “The Seen and the Unseen.”

Far too often are the seen effects the central focus of analysis while the unseen effects are totally disregarded.  In this instance, the $3 billion used to “stimulate” the car industry has destroyed at least $3 billion in productive capacity from other sectors of the economy.

Hat-tip to Eric Imhoff

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One thought on “The Clunked and the Uncluncked

  1. Give them the benefit of the doubt: It could be that our elected representatives intuitively understand diminishing returns. :)

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