I just discovered this superb 2014 Learn Liberty video featuring my old Clemson University colleague Dan Benjamin on a topic on which he is a leading expert: recycling.
This morning I discovered that the rear window of my car is completely shattered. (I’ve no idea how it happened, although I do not suspect foul play.) So I hired a glass company to repair it. The repair (which will occur on Thursday) will cost me a sum just north of $500. Explaining this unfortunate unexpected broken window just now to my GMU Econ colleagues, doctoral student Patrick Newman pointed out that what is unfortunate for me is fortunate for my fellow citizens, as my paying to have my broken window repaired will stimulate the economy. (Paul Krugman might point out that, because unemployment remains a bit high, there is actually no cost to repairing my window. It’s free! That’s very comforting. In order to be relieved of the need to fork over several hundred dollars to the glass-repair firm, I’ll try to explain to them that it really costs them nothing to repair my window. I don’t anticipate success with that explanation.)
Of course, Patrick’s tongue is planted – Bastiat-like – solidly in his cheek. The glass-repair company gains from my misfortune, as do its workers and other suppliers. But the $500+ that they gain is a $500+ loss for me.
I can’t identify precisely what I will not buy now that I am $500+ poorer. I can say that whatever it is that I will not buy is some good or service that I would otherwise have purchased in the future. That $500+ will be withdrawn from my savings (or, more precisely, not added to my savings). Banks will have less money to lend. Some entrepreneur will find herself with $500 less in borrowed funds to use to start or to upgrade her firm, or some consumer will have $500 less to spend on a new car or on home remodeling, or a student will have a bit more difficulty securing at a good rate a loan to pay for college.
Stepping back, scarce resources – including labor – that will now be consumed in repairing my car’s window will not be available to produce whatever other valuable goods or services that those resources would otherwise have been used to produce.
The breaking of my window makes not only me, but all of humanity, poorer. Either way, I have an unbroken window in my car, but now I don’t have whatever it is that I’d have purchased with the money I spent to repair the window. Either way, the world has an unbroken window in my car, but it doesn’t have whatever else would have been produced with the resources that are consumed in repairing my window.
Obviously – and thankfully – this negative effect is so slight that I’m the only person who will notice it. (Believe me, while I’m grateful to be able, as we say, “to afford” to pay this $500+ expense, I would much prefer that my window had not been broken and that I could instead use that $500+ in some way other than to make my car only just as useful to me as it was before the window in it was broken.)
Contrary to claims made by reporters and pundits following every natural disaster, the disaster is not good for the economy. Never. The world is wealthier if I have a never-broken window and whatever it is that I buy with my $500+ than it is if I have a repaired window acquired at the expense of whatever it is that I would have otherwise purchased. For the same reason, the world is wealthier if cities and towns remain in one piece by escaping natural disasters rather than having to be rebuilt.
The fact that this fact is not widely recognized as a fact is, in fact, unfortunate.
Peter Yoo asks that I again share here at Cafe Hayek my September 2007 Freeman article entitled “The Nation Is Not a House.” A slice:
Analogizing a nation to a home creates the myth that citizens of a nation can, and do, trust each other in ways that members of the same household typically trust each other. But, of course, when I lock my home at night I do so to guard against violence and theft that might otherwise be inflicted on my family by other Americans. If every foreigner were immediately and forever expelled from the United States today, I—like all Americans—would be not one whit less vigilant in locking my home.
The fact is that the relationships each of us has with our fellow citizens overwhelmingly are of the arm’s-length, impersonal variety. They are market relationships, governed chiefly by self-interest on both sides of each exchange. They are not the sorts of personal relationships that guide decisions made within households. They are, indeed, precisely the sorts of relationships that each of us has with strangers from foreign countries.
So what value is there in analogizing a nation to a home? Very little. No one would seriously insist that each city should shut down its streets at night (on the grounds that private homes at night become inactive). No one would seriously demand that each pedestrian on Manhattan’s Fifth Avenue or on New Orleans’s Bourbon Street first secure a specific invitation to stroll those famous boulevards. And very few Americans would agree to give to the government the same sort of power to govern speech and personal behavior that members of each household routinely exercise over each other.
Here’s a letter to a young woman – a student at the University of Iowa – who tells me that she reads Cafe Hayek occasionally “to see what conservatives think.”
Ms. Erica C_____
Dear Ms. C_____:
Thanks for your e-mail. First, I am not conservative. I am liberal in the original and correct sense of that term.
Second, I’m afraid that I don’t share your enthusiasm for politics, be they democratic or not. Where you “see citizens [at the polls] selecting our leaders,” I see people voting on which power-mad person will crack the whip over those same people and brand and herd them like cattle. Where you are “inspired by candidates campaigning openly to win the election,” I am frightened to realize that one of those hubris-slathered men or women will actually come to possess such power that no man or woman is, or ever will be, fit to possess. Where you are “charged” by the “vigorous debates” among candidates, my stomach is sickened and my intelligence is insulted by the economics-free, fact-strained, and too-often-vacuous talking (and shouting) points that pass for a serious discussion of issues.
And where you say that you “trust voters” more than I trust them, that depends. You’re correct that I distrust people as voters, for in that capacity they largely express opinions on how other people’s (their fellow citizens’) money should be spent and on how other people’s lives should be led. But I trust – perhaps more than you do, and certainly more than do any of the candidates – those same voters as individuals each to spend his or her own money wisely and to lead his or her life well, each according to his or her own lights, without interference or direction from any of the officious, arrogant, and venal candidates seeking power over the lives of other people.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
… is from page 480 of Deirdre McCloskey’s 2006 volume, The Bourgeois Virtues:
“Real wealth” in the economist’s way of thinking is not a pile of finished stuff merely to be allocated, as in the children’s playroom. Nor does wealth consist of those tokens of ownership such as money in your pocket or stocks in your pension plan or profits from your drug deal. Wealth is the real ability in arm or brain or machine to produce more stuff, the “real” backing for the tokens.
Gary Bryant, in an e-mail, asks:
What is [the] most ridiculous economic fallacy that is believed by a significant number of professional economists?
Wow. Good question. There are many such fallacies, and it’s difficult to rank-order them according to their ridiculousness. My list and rank-ordering, of course, reflects my own understanding of economics (which is Hayekian-Alchianian-Coasean-Buchananite-McCloskeyan) and my subjective assessment of ridiculousness. But Mr. Bryant’s question is fun, so here’s a list of five:
(5) the idea that government-subsidized health care will lower the cost of health care;
(4) the notion that government must have monopoly control over the money supply in order to ensure sound performance of the economy;
(3) the belief that large differences among people in monetary incomes or monetary wealth reflect some market failure that ought to be ‘addressed’ by the state;
(2) the blind faith that government officials in democratic societies can be trusted to exercise power over people who economists do not trust to make choices for themselves;
(1b) the notion that welfare payments (other than EITC) subsidize employers by pushing workers’ wages lower, and
(1a) the notion that the minimum wage is, or can practically be, a boon to all low-skilled workers.
Each of these notions reflects not only an ignorance of history but also an utter failure to grasp basic price theory.
On “protection” (if we could get rid of that word . . .): Mill in On Liberty (1859) wrote of the suffering from shifting demands and supplies, “Society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit—namely, fraud or treachery, and force.” That is to say, what is crucial is the ideological change that short-circuits the “protective” impulse of tariffs, licensure, quotas, and other uses of the monopoly of violence against the general interest.
In my reply to Deirdre I confessed that I’d read On Liberty only once, and that reading occurred at least 20 years ago. I didn’t recall Mill’s eloquent objection on this score to
protectionism the cronyist policy of exerting government force against fellow citizens to prevent them from spending their money as they choose.
Deirdre’s e-mail gives me the opportunity to clarify a confusion that my poor wordsmanship has caused in some commenters and e-mail correspondents. When I say that there are no losers today from international trade I emphatically do not mean that there is no one who must adjust to changes in the patterns of consumer expenditure what he or she does economically. There are many such people. These adjustments are typically costly, and in many cases greatly so. The American steelworker who loses his job because his fellow citizens come to prefer to buy steel from Brazil rather than from Pittsburgh might remain unemployed for months or even years. That unemployment is a source of real and undeniable suffering for that unemployed man and his family.
My point is not to deny the reality of outcomes such as the one described here of a hypothetical unemployed Pennsylvania steelworker. My point, instead, is to insist that (1) there is nothing unique or special about losing a job to imports compare to losing a job to any of the countless other sources of job losses, and (2) any suffering that Jones endures from the economic institution of open trade must be weighed against the benefits that Jones reaps from that economic institution. So when I say that there are in America today no losers from trade, I mean only that there are no losers from the institution of international trade all things considered. I do not mean that there are not people who are made worse off economically, compared to how these people would otherwise have fared, by changes today in the patterns of consumer spending.
Perhaps an analogy would be helpful. As with trade, I insist that there are no losers from freedom of speech. Of course, it’s true that if, say, Paul Krugman exercises his freedom of speech to criticize a particular politician, that politician might suffer. That politician’s pet piece of legislation might lose so much public support that it is not enacted by the legislature. Or, worse for that politician, she might be rejected, as a result of Krugman’s exercise of Krugman’s freedom of speech, by voters in the next election. It is no offense against the American English language to describe that politician as having suffered losses because of what Paul Krugman said about her.
But I insist that, even if this politician suffers unjustified public disgrace because of some (not legally slanderous) utterance that Krugman made publicly about her, she is not a “loser” from the policy of freedom of speech. The civilization of which this politician is a part is unquestionably stronger, more durable, and greater because of its policy of free speech. And the resulting benefits that this politician enjoyed in the past, and continues to enjoy even after Krugman’s talking unflatteringly or unfavorably about her, are almost surely so large that her suffering at the mouth of Paul Krugman is insufficient to classify her as a “loser” from free speech.
Just as we do not say that people, such as this hypothetical politician, are “losers” from free speech, we should not say that workers who today lose their current jobs to imports are “losers” from free trade. (Note that a similar analogy can be drawn with freedom of religion. Freedom of religion has, no doubt – because of the competition it unleashes among different religions and churches – caused many a priest, preacher, pastor, rabbi, Iman, and wicken to lose his or her job, or to otherwise suffer a loss of income or of prestige. And yet we rightly do not describe these losses as being the results of freedom of religion.)
Here’s a link to the Stossel show of a few weeks ago that (I boast) was built on this Cafe Hayek blog post.
I’m chagrined to confess that I only just today learned of this 2007 paper by my old Clemson colleague John Warner, my current GMU colleague Jim Miller, and RAND’s Beth Asch on economists’ role in ending U.S. military conscription. (I learned of this paper here.) Here’s the paper’s abstract:
An important case in the last half century where the “economic way of thinking” contributed to a major government policy change in the United States was the decision to terminate conscription as the means of staffing the bulk of the U.S. armed forces. After an acrimonious public debate that lasted five years, conscription was ended in 1973. Economists played an important role in the draft debates and in the decision to terminate it, and, since then, in the management of the All-Volunteer Force (AVF). While their recommendations have not always been heeded, economists, and the economic way of thinking they have advanced, have helped shape effective military personnel.
Barry Brownstein explains the economic-equalizing force that is modern capitalism. Here’s his conclusion:
The essential consumption goods we couldn’t even imagine a hundred years ago are almost universally available in the United States today. The marketplace, aided by many creative, pioneering entrepreneurs and every person who strives to put in a good day’s work, is generating consumption equality.
… is from a personal conversation that I had in the summer of 1991 with Julian Simon. I was then about to enter my third year of law school at the University of Virginia, and Julian had invited me to play racquetball with him and, later, to dinner near his home in Chevy Chase, MD. At dinner, Julian asked how I was enjoying law school. I replied “Just fine. The professors and my fellow students are all, to a person, really smart.” Julian replied immediately:
Smart has never impressed me. Smart is directionless.
So, so true.
Julian died, far too young, 18 years ago today.