Thursday, 13 August 2009

The broken window fallacy: Robert Barro on 'cash for clunkers'

Robert Barro comments on the "cash for clunkers programme" in the US:
The most ludicrous (though, fortunately, small) intervention thus far has to be the cash-for-clunkers program. It’s not surprising that subsidising people to destroy old cars would raise GDP, because measured GDP includes the replacement cars but not the value lost from destruction. Why not also blow up houses and factories and then enjoy the expansion of GDP from the replacement investment? (Actually, it’s best cosmetically to blow up refrigerators and other consumer durables because GDP does include rental income on houses and factories.)

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