Saturday, September 12, 2009

Keynesian Economics and Government Math

If you are suspicious of the numbers Democrats throw around when promising us heaven on earth, you are not alone. Some patriotic citizen out there, equally suspicious, put pencil to paper on the Cash for Clunkers program hailed by all and sundry as such a rousing example of the beneficence of Keynesian pump-priming, to see just how marvelous a thing it was.

Cash for Clunkers is a tiny program by this administration's standards, so the following analysis, suitably scaled up for the other government spending horror shows coming this season, should serve to clarify our situation, vis-a-vis our government masters.

The two main rationales for the program were 1) replacing gas guzzlers with more efficient cars, while 2) goosing sales and thereby providing stimulus to the economy. My, how they must imagine old John Maynard beaming down from heaven at his acolytes' clever combination of his economic theory with the tenets of the Church of Green. Let's take a look:
A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.
A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

So, the average "Cash for Clunkers" transaction will reduce US gasoline consumption by 320 gallons per year.

They claim 700,000 vehicles – so that's 224 million gallons / year.

That equates to a bit over 5 million barrels of oil.

5 million barrels of oil is about ¼ of one day's US consumption.

And, 5 million barrels of oil costs about $350 million dollars at $70/bbl.

So, in brilliant Keynesian fashion, the government (that is, you and I) spent $3 billion to save $350 million.

Hey, if you're going to save the earth, you have to spend some money. The extra $2.65 billion is what the carbon dioxide not spewed into the atmosphere by those clunkers cost us.

Now let's see what they can do with regulating and taxing the entire carbon-based energy sector. Should be a bargain along the lines shown above.

1 comment: said...

I firmly believe that the monetary and fiscal policies that the world is embarking on have created liquidity induced securities speculation (all over again) and have engendered inefficient resource allocation. You can't erase trillions in bad loans and poor capital investment decisions just by throwing around some "stimulus" funds and lowering interest rates to 0%.

READ - The Resurgence of Keynesian Economics and Interventionism