Last time we reviewed Hazlitt’s discourse on the “blessings” of destruction, and used as a modern-day (and all too recent) example the “Cash for Clunkers” program. Used cars were traded in for taxpayer-subsidized rebates on the purchase of new cars. The ostensible rationale given for the program was “to stimulate” the automobile industry in America (there were myriad other designs and political machinations built into this enterprise, but they lie outside the scope of this discussion). Indeed, new cars were purchased (though it is arguable whether they would not have been purchased otherwise, if only later), and workers in various businesses related to the manufacture of automobiles were paid salaries, which they subsequently spent on household goods, or groceries, or any of the other things we require or desire in life.
On the “unseen” side of the equation, however, billions of dollars worth of usable automobiles were destroyed (one of the requirements to receive the government stipend), the cost of used cars increased by about 10% (thereby harming the purchasing power of folks that can’t afford to buy new cars), and the net economic benefit to the country was arguably zero. Oh yeah, and the program cost several billions of dollars to implement, making the calculated cost to taxpayers of each purchase transaction about $24,000. Hazlitt concluded destroying perfectly good things under the guise of stimulating economic growth never results in a net economic benefit.
This time, we move on to another of the fallacies inherent in what Hazlitt described as misguided economic thinking: public works mean taxes, and taxes discourage production. Chapter 4 of Economics in One Lesson begins with a great quote:
“There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency.”
The Hoover Dam, built as one of these beneficial public works projects, is a fine example: The imposing and mighty structure, holding back the Colorado as Lake Mead, provided employment for thousands of workers, allows flood control along the lower reaches of the Colorada, and hydroelectric power for millions. All of this is easily seen. What is not seen, and thus often left from the equation of the casual observer, is what didn’t happen because of the diversion of taxes to a public project. The scale of the Hoover Dam just makes it all that much easier to forget the unseen. Even today, we have Congressmen talking about the “need” for another WPA, with the express purpose of putting the unemployed to work doing “needed” things, using the confiscated income of privates citizens that might otherwise have been more beneficially employed.
Does Hazlitt’s quote remind you of anything you’ve heard recently? In any given week, you can pick up a copy of the New York Times (or access it on the internet) and read their resident economic columnist, Paul Krugman, earnestly pleading the case for massive amounts of government spending to cure all of our economic deficiencies. More recently, you can read his apologetics: arguing that the recent stimulus didn’t perform its “magic” because not nearly enough government spending was employed. What makes Krugman’s explanations so exasperating is the way he implies that anyone who doesn’t believe that government spending is the answer is addled, racist, and/or unwilling to accept the “facts” (his version of them, anyway).
All of his explanations, and those of other Keynesian economists, argues Hazlitt, are balderdash: more elaborate and larger-scale explications of the one lesson. That is, looking only at the short-term implications of a decision while ignoring the long-term, and considering the impact of a decision for only one group while ignoring others. Hazlitt’s several other examples of the fallacious … with “beneficial” public works all end with the same conclusion:
“…it is highly improbable that the projects thought up by the bureaucrats will provide the same net additionna to wealth and welfare, per dollar expended, as would have been provided by the taxpayers themselves, if they had been individually permitted to buy or have made what they themselves wanted, instead of being forced to surrender part of their earnings to the state.”
What’s amazing to me is these words were written in 1946, and almost nothing has changed, except for the rate at which we are taxed, and the voracity with which the agents of the leviathan devise new schemes to spend that revenue.
