Some value destruction

September 8, 2011 • Editorial

One reason we can’t get the economy on track is the mass economic ignorance that enables politicians to pass off redistribution schemes as growth.
Some children, seeing a rabbit pulled from a hat, surmise that magic hats produce rabbits. Similarly, gullible adults see government programs as sources of wealth. The rabbit did not magically appear in a hat. It came from someplace else. A hat may be among the last places a rabbit wants to be.

Redistribution of wealth takes capital from one rightful owner and places it someplace else — generally a place the person who earned it would not have put it by choice.

To understand how Americans mistake redistribution with prosperity, review the stories that are told after hurricanes and other natural disasters. [auth] We hear this: The storm destroyed property and lives. But it will help the economy as people go to work fixing that which was destroyed.

In other words, some believe that redistribution of wealth — whether at the hands of powerful politicians or storms — produces something that moves society forward.

Here’s how MSN Money told a redistribution fallacy after Hurricane Irene destroyed property along the East Coast: “There may be a hidden stimulus package here,” reported Kim Peterson. “MarketWatch’s Irwin Kellner said Irene might have reduced growth in the gross domestic product by as much as a full percentage point. But the effects of the storm could boost the fourth-quarter GDP by even more.

“He’s talking about the sudden influx of work for the construction industry. There is much to clean and rebuild, and a good portion of that work will be funded by the federal government.”

Free money! The story goes on to explain that Home Depot and Lowe’s took in cash before the storm, selling plywood and generators to prospective storm victims, which should help the economy. Reading or hearing this drivel, one could get the impression that our economy would thrive if only more natural disasters would strike. If that’s the case, we should seed the clouds and create violent storms.

Destruction — whether by war, weather or vandalism — cannot help the economy. If victims must spend to repair damage, to get back to square one, it is capital they won’t have to move forward or to pay off debts. If government must fund them to recover, it’s money from another American’s pocket that could have been used toward progress.

This is what Frederic Bastiat, a 19th Century French classical liberal theorist and economist, taught with his 1850 essay “Ce qu’on voit et ce qu’on ne voit” (“That which is seen and that which is unseen”), known commonly as the broken window parable. The story explains how society gains nothing from the destruction and replacement of a window.

Widespread economic well-being results only from innovation, production and free exchanges that improve our lives by moving us forward. Destruction and artificial jobs produce wealth at the same rate top hats produce rabbits.

Guest Editorial
The Colorado Springs Gazette

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