Wednesday, June 10, 2009

Pelosi's creative destruction?

The term "creative destruction" has perhaps reached peak popularity as pundits high and low have debated economic policy during the current recession.

A bill making its way through Congress put an intriguing spin on the concept.

In short, the government would pay people to trade in old cars, with the stipulation that the dealer will ensure that the old vehicle is scrapped.

I heard about this bill on the radio last week, and it was reported that the engine and drive train would be destroyed.

"Creative destruction," of course, refers to the free market's tendency to improve its products and services. This effort by Congress (probably spearheaded by Democrats) serves as an example of state intervention in the economy ostensibly for that same purpose.

Will it work?

In terms of economics, very probably not. As Ed Morrissey points out at Hot Air, consumers would be crazy to trade in vehicles to take advantage of the vouchers where they get less then the car's real value. In those cases, our economy will turn a high value item into presumably less valuable scrap, and no junk dealer is going to turn a profit on drive train. I don't know whether scrapping the car will require that other parts would not be removed for resale.

Naturally, the aim of the bill dovetails with President Obama's energy policy. Obama has preached that cutting the use of fossil fuels serves as a key to the economy of the future. Even on the supposition that this program would result in a net decrease in the use of fossil fuels, however, it does not follow that the economy improves as a result.

Energy serves its key role in an economy with respect to the efficiency of the energy source. That covers all types of efficiency. How easy is it to transport the energy? How much does it cost in its various applications? How much does it cost environmentally? Etcetera.

Obama has the United States weaning itself from the most efficient energy sources in favor of less efficient energy sources. The program works if technological advances give us the more efficient source of energy before we pay the equivalent price in deliberate inefficiency. With the caveat that greenhouse gasses may figure in. Obama, of course, hopes that by raising the price of energy produced with fossil fuels will spur technology.

I have a suspicion that technology requires time and thought on at least equal measure with money.

Are we crossing a bridge or walking the plank? Time will tell, but I expect the latter.

As for the automobile industry, yes the law might help them sell more cars, but each sale under this program is subsidized. That means that, in effect, this bill will borrow yet more cash from future generations so that we can buy new cars from companies kept afloat with money from the next generation.

No comments:

Post a Comment

Please remain on topic and keep coarse language to an absolute minimum. Comments in a language other than English will be assumed off topic.