No one considers what might happen 20 years in the future or wishes to wait that long for a desired effect: it must happen now. Something must be done. For those of you who don’t know, this was virtually Franklin Delanor Roosevelt’s campaign slogan and how he got a lot of his programs through Congress: he was doing something! How skilled the politicians are in weaving their schemes. There is a reason why economics is not taught in schools today…
This is a very basic economic flaw, one we can avoid after two minutes of light thought, but this flaw, this lack of long-term vision, is what brings about welfare, public works, taxes, tariffs, minimum wage laws, inflation, unions, rent control, price fixing, government education, forced saving schemes, and every other socialist program that exists. In order to counter the arguments for such programs, we have to examine and destroy their foundation.
But how you ask? Let us look at a very basic application of this economic flaw: Disasters.
A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window…after a while the crowd feels the need for philosophic reflection…after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars?…after all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless…1
This is a quote from Hazlitt’s Economics in One Lesson, and the example is from Bastiat himself. Here is the theory that the crowd discusses: the baker will pay the fee, and the glazier now has money to spend with other people. In turn, those businesses will be able to spend more with other people, and on and on. Wealth has been created! Business! Commerce! We should not condemn the ‘young hoodlum’; in fact, has done us all a great favor! Rejoice! Let’s break a few more windows and jump-start the economy!
Um…no. This is true in the short run: the glazier will have some nice business, but what about the baker? What about what he wanted to do with those 250 dollars? Maybe he wanted, say, to save that for investment? Or, as Hazlitt uses, a new suit?
‘Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having a window and a suit he must now be content with a window and no suit. If we think of him as a part of the community, the community has lost a new suit that might have otherwise come into being, and is just that much poorer.’2
See? The glass-maker only gets his business from the loss of the tailor’s business. He can’t spend and buy that suit now, because he had to replace his window. Hazlitt explains it in clear terms: There is no new business in the economy: it’s just been moved around. If you examine it even further, a net loss of economic wealth has taken place. The glass-maker might have temporary business, but the tailor would have been able to use that money to invest in the glass making business, and thus more wealth could have been created. No, we can merely replace what has been lost. Still the crowd gathers and thanks the young hoodlum.
This flaw is already being used to justify government expansion and to dupe the people. See if you can notice this in this article:
http://news.yahoo.co…economy_050208034722/
Analysts said the avalanche of assistance from global lenders and the post-tsunami reconstruction across the devastated regions will kick-start economic growth now expected to cross five percent next year.
Um, yes, that’s great. But, what about all those people whose homes were destroyed, their businesses wrecked? And all their money? They’ve lost all this capital that could’ve been used for this economic recovery. Now they have to recover that money, build the restricted economy up to its pre-disaster level, and start this economic recovery with…nothing. And if you look further, they want to use this disaster to build a ‘new transport infrastructure’ among other programs. Of course they could have just adopted free market policies and they wouldn’t have to have a big economic upturn, because it would already be occurring. Sri Lanka ranks 79 and as ‘Mostly Unfree’ on the Economic Freedom Index.
Simply put, Disasters are not blessings: they destroy capital, they destroy people’s livelihoods, economies, and give the government greater excuse to intervene and strangle the economy and prevent it from actually recovering. Despite 300 years of economic history that defies this error, people still refuse to look at the long-term effects of any economic decision. As long as they do so, the government will continue to justify its programs, its socialism, and its expansion, and the people will continue to release their freedoms to the Ivory Kings without hope of relief.
If only the people would realize what they will reap in the future.
1 Hazlitt, Henry. Economics in One Lesson. San Francisco: Lasseiz Faire Books, 1996., p. 11 2 Ibid, p. 12 (emphasis added)
Recommended Reading:
Economics in One Lesson (50th Anniversary Edition) Henry Hazlitt, Forward by Steven Forbes
The Law Frederic Bastiat
Man, Economy, and State Murray Rothbard
The Wealth of Nations Adam Smith
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