The Broken Window Fallacy and "Cash for Klunkers"

FT.com has a short article that quotes economist's advising that the "cash 4 Klunkers" program is having a nice impact on auto sales, but a very negative impact on retailers and service providers across the country. The money that would otherwise be naturally stimulative is being redirected away from the rest of the economy. This is a perfect example of the broken window fallacy, an economic parable that proponents of big government expansion and stimulus packages continue to ignore. It was true when President Bush was doing it, and it is especially true of the Titanically proportioned stimulus II produced by Prime Minister Pelosi at President Obama's request.

The figures came in the day after the White House's overly optimistic media base reported that the recession was showing signs of leveling out. They expected an increase in spending, with cash for klunkers leading the way, but according to Reuters:

A Commerce Department report on Thursday showed total retail sales edged down 0.1 percent after increasing 0.8 percent in June. Excluding motor vehicles and parts, sales fell 0.6 percent in July after rising 0.5 percent the prior month.

Analysts had expected a boost to retail sales from the government's "cash for clunkers" program and predicted a 0.7 percent advance in overall July sales.

They said the program -- which gives consumers discounts to swap aging gas-guzzling cars for new, more fuel efficient models -- had pulled spending away from other sectors.

Please let your Congressmen in on this information. Someone has to let them know what is really going on out here. Judging from these town hall meetings, they have no idea.