2.07.2007

Interesting Old Economists

I didn't remember buying this book when I ripped open the shipment
from the online book store last month, and I remember earlier this
week second-guessing whether I should have brought it on my day trip
to New York or if I would be better served with a more interesting
book. But there I was on the train, having finished everything else
I'd brought to read, and now holding a collection of essays about
economists from Adam Smith to Gary Becker. Probably not anywhere near
what anyone else on the train was into at the time.

I decided to dive in anyway, and was pleasantly surprised to be
quickly engrossed in the essays. The viewpoints were fairly
conservative, so I found myself agreeing with most everything that was
written. I appreciated learning more about big names I've heard of
before (Friedman, Coase) but more so finding out about more
non-mainstream giants who came up with some pretty sound and witty
stuff. Allow me to share two nuggets, the first from Henry Hazlitt
and the second from Frederic Bastiat.

Hazlitt has this thing called the Broken Windows Fallacy, in which he
talks about a hoodlum who breaks a baker's window, causing the baker
to have to pay the glazier $250 to replace the window. Someone in the
crowd comments that this incident makes the glazier $250 richer, which
he can then use to enrich others in the local economy, thus rippling
the positive effects further outward. That hoodlum, then, could be
seen as a public benefactor, catalyzing a positive impact on the whole
economy.

Fallacy, of course, and how Hazlitt puts it is that because the baker
has to pay the glazier $250 to replace a window that was just fine
before the hoodlum arrived, the baker doesn't get to pay the tailor
$250 for a new suit. Without the hoodlum, the baker is out $250 but
has a new suit; with the hoodlum, the baker is just out $250.

Sounds intuitive, I know, but how many times did we hear otherwise
intelligent people talking about how Katrina was good for the economy
because it created all this construction activity that had a
multiplier effect to other industries. The book mentions an older
reference, that of then Vice President Al Gore talking about how the
1992 floods in the Midwest would lead to new jobs created for
rebuilding.

The conservative point in all this, as I've made before, is that if
government takes taxpayer money to create jobs, that's not net new
jobs, because that taxpayer money, if left in the pockets of
taxpayers, might have created that same number of jobs or even more.
A reasonable fact that we easily forget when politicians are wooing us
with their boasts of job creation programs they've funded or plan to
fund under their administration.

The second nugget, from Bastiat, I'll just quote verbatim from his
satire entitled "The Petition of the Candlemakers": "We are suffering
from the ruinous competition of a foreign rival who apparently works
under conditions so far superior to our own for the production of
light that he is flooding the domestic market with it at an incredibly
low price; from the moment he appears, our sales cease, all the
consumers turn to him . . . This rival . . . is none other than the
sun."

Bastiat's article goes on to petition the government to pass laws
requiring that all windows be closed so as to block out the sun and
give the candlemakers special protection. Hilarious stuff.

The conservative point that was made out of all this is this
fallacious notion that we're poorer as a country if we outsource all
of our low-skill stuff to other countries, and that the solution then
is protectionism. What that argument is missing is the gain our
economy accrues by, having outsourced the easy stuff, being able to
shift our resources to harder stuff that can make us all richer.

Listen, I don't dispute that there's a role for government to play in
terms of juicing the economy or protecting the economy. I just think
the arguments people employ to defend those positions is illogical,
and thus it leads to solutions that don't actually achieve what their
defenders desire. I'm glad I took my boring economics essays to New
York with me so I could learn about two other obscure economists who
agreed with me, and who articulated those points in far more clever
ways.

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