The Motor Traders Association is suggesting that we destroy all of our old vehicles to "stimulate" the industry,

The Motor Traders Association of NSW has written to Treasurer Wayne Swan explaining the benefits of the initiative, while the Motor Traders Association of Australia (MTAA) has commissioned think tank Access Economics to produce economic modelling on the costs.

The MTA NSW has asked the Government to pay up to $3000 to crush cars more than 10 years old.

Once the car was destroyed the owner would get a certificate to be presented at a car dealership to receive $3000 off a new car.

That sounds logical, right? Wrong. They're confusing need with demand. Just because the government and interest groups think we all need to replace these old vechicles, it doesn't me we're entitled to them. We have to produce something, to accumulate purchasing power before we can demand ! However, I do agree with the comment below that this will help the auto industry, in the short term about this there is no doubt,

"We need to help the industry, including 103,000 small businesses that make a living from the car industry and 318,000 workers."

While this "stimulus" may create more work for the car industry and small businesses supported by it, it's actually just a diversion of demand to this industry from others. While these guys are out building cars that no one is actually demanding , other products, the ones people do actually demand, are never created. If the arguments put forth above are really true, then why doesn't the government immediately wreck our old plants, planes, houses, whatever and recycle (or just junk) the old parts? How do they know when something needs to be replaced? Quite simply, they don't.

There exists an optimum level of replacement, a period when the benefits derived from replacing an old piece of machinery overtake the benefits of keeping it. This isn't for the government to decide, it's for the individual. They alone should decide if the vehicle has no value to them anymore and needs to be replaced.

Even if this "stimulus" does increase GDP in monetary terms (i.e. raising prices or 'national income'), it will not be creating any additional wealth or production in our economy: it will destroy it. It's the same reason why most natural disasters result in an increase in GDP, because GDP only measures output, not real wealth.

The sad thing is, this policy is just stupid enough to appeal to the economic illiterates that run this country.