Mises Wire

Cash for Cranks

Cash for Cranks

This post is one in a series entitled Posthumous Refutations. Previously in this series: The Starvation Brink, Victorian England, and the Santa Claus Principle.

Christina Romer, chair of the President Obama's Council of Economic Advisers, is beaming with pride in the Wall Street Journal over Cash for Clunkers purportedly being "successful in boosting demand and job creation".

Meanwhile, Saturday Night Live's hilarious version of Chinese President Hu Jintao is rather less enthusiastic about the program.

INTERPRETER: And this "Cash for Clunkers" program- I have read that you purchased many clunkers with our money.

OBAMA: Yes, we have.

(Hu Jintao "speaks.")

INTERPRETER: What does this word "clunkers" mean?

(Hu Jintao "speaks.")

OBAMA: Well, a clunker is a car...

(Hu Jintao "speaks.")

INTERPRETER: I know what a clunker is. And just so there is no misunderstanding, you are not allowed to pay us back in clunkers.

OBAMA:Of course not.

(Hu Jintao "speaks.")

INTERPRETER: You know, as I listen to you, I am noticing that each of your plans to save money involves spending even more money. This does not inspire confidence.

Elated at the revolutionary discovery that if you offer people free money, they take it, Romer is now floating an even more harebrained idea.

One idea is to give direct incentives for homeowners to retrofit their homes to improve energy efficiency. This approach would be convenient and certain, and it could encourage millions of homeowners to make cost-effective investments they might not have done for years, if ever. It could help both stimulate the manufacture of retrofit products and increase construction employment.

This plan is being called "Cash for Caulkers" (I kid you not), and it is being promoted by John Doerr, the Silicon Valley venture capitalist, and former President Bill Clinton. Rahm Emanuel, President Obama's chief of staff has said of President Obama and the plan, "It's one of the top things he's looking at."

But wait, I, Grayson Lilburne know how to rescue the economy! I call it "Cash for Cranks". The government will give free money to dot-com investors, former presidents, and central bankers for coming up with half-baked schemes for rescuing the economy. These schemes will actually worsen the economy, thereby increasing the demand for more half-baked schemes to rescue it, which will in turn create more employment for more cranks. The schemes of these new cranks will worsen the economy yet further, which will increase crank-demand yet further, and so on. This virtuous cycle will continue to spiral until everyone is an economic crank, which means 100% employment! Then we can really say, "We are all Keynesians now".

One can only sigh, "Professor Mises, take it away":

People expatiate on alleged government encouragement of production. However, government dies not have the power to encourage one branch of production except by curtailing other branches. It withdraws the factors of production from those branches in which the unhampered market would employ them and directs them into other branches. It little matters what kind of administrative procedures the government resorts to for the realization of this effect. It may subsidize openly or disguise the subsidy in enacting tariffs and thus forcing its subjects to defray the costs. What alone counts is the fact that people are forced to forego some satisfactions which they value more highly and are compensated only by satisfactions which they value less. At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens' spending and investment to the full extent of its quantity.

While government has no power to make people more prosperous by interference with business, it certainly does have the power to make them less satisfied by restriction of production.

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