November 2 2009

IWF in the News: Fox Reporter Needs Econ 101

Carrie L. Lukas

The White House and much of the mainstream media argue that Fox News just parrots conservative talking point. Yet in this October 30th story about the cash for clunkers program, it's the White House talking points that are echoed without placing those points in context or offering much needed analysis.

Reporter John Voelcker writes:

The program took nearly three quarters of a million heavily-polluting cars and trucks off the roads, and put that many new, much cleaner vehicles in their place. And it boosted the ailing car industry, including suppliers and dealers that employ hundreds of thousands of workers.

Voelcker looks just at the most simple part of the transaction: customers with subsidies purchase new cars. In doing so, he misses a lot of players who are really affected by the dynamic. For starters, incentives to buy new cars may be a boon to new car dealers, but they are a disaster for used car dealers, for a discussion and examples of those taking the hit see here and here. By depleting the market of used cars by taking hundreds of thousands off the road, the Cash-for-Clunkers program also drove up the price of used cars. That's bad news for those who are in the market for a car, but can't afford to buy a new one, even with a government subsidy.

Voelcker ends the article with a quote for an industry specialist who emphasizes how many factory and sales jobs were saved because people purchased these cars. But what about the program's effects on other sectors of the economy? Let's say that someone spent $10,000 on their new car. That's $10,000 that wasn't available for them to use to purchase clothes, go on vacation, or invest in a start up business. Looking at one transaction in a vacuum is to commit the most basic error of economics.

A more thorough reporter may have dug a little deeper and questioned a central premise of the program: If it is really such a good thing to take 750,000 cars off the road, why not just create a government program to bull doze over the nation's entire fleet? That would certainly create a demand for new cars. Or why not just have everyone burn down their houses-that would really stimulate the construction industry!

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