The “Broken Windows” of Hurricane Sandy

[Note: After completing this post, I discovered that Peter Schiff had already discussed this topic today.  Watch his video.]

During lunch today, I cringed as a cable news anchor referenced the “silver lining” in the devastation caused by Hurricane Sandy — namely, that unemployed workers in construction and other industries can now be employed in the rebuilding effort.  This is a textbook example of the broken window fallacy, and since I do not expect this news anchor’s ombudsman to dutifully identify and report the misstatement, I found myself motivated to reboot this blog after a couple months of inactivity.

Frédéric Bastiat identified the broken window fallacy as early as 1850, and although it is simple enough for any high school student to comprehend, in my experience it is not taught.  (As for the reason why a government school might not seek to debunk this fallacy… I leave this as an exercise to the reader).

Bastiat sets up the fallacy in the following way.  Suppose that a shopkeeper’s son accidentally breaks the window of the store.  The shopkeeper pays the glazier a sum of 6 francs to create and install a new window.  Onlookers observe that the broken window has led to an economic exchange which allows for the employment of the glazier, and so the onlookers conclude that broken windows are an economic boon.

The fallacy lies in the difference between the seen and unseen consequences.  The onlookers in the story consider only the seen: it is certainly and visibly true that broken windows employ the glazier.  But it is not clear, in fact not even knowable, how the resources in the story would have been allocated if the first window remained intact.  These are the opportunity costs.  For example, the shopkeeper would have spent his 6 francs on a different good or service, allowing for the employment of someone else.  The glass demanded to create the new window might have been demanded for a different product, which now cannot be made.  The glazier, if he truly could not maintain his industry in a world of unbroken glass, would then apply his labor toward a different industry to meet a different demand.

Destruction of property cannot make a society wealthier on the whole, because rebuilding expends economic resources and incurs opportunity costs, possibly of the unseen type.  It is true and visible that the hurricane damage will cause a rebuilding effort, and the rebuilding effort will employ a number of people.  But the net economic effects must necessarily be negative to a monumentally tragic degree.  Many unemployed may find a temporary job, but many currently employed will lose their permanent jobs.  Some people may be a little better off, but a great many will be much worse off.  The news anchor referred to a “silver lining” that at least the hurricane damage will stimulate the economy, but if he considered the unseen consequences, he would realize that rampant devastation of capital can only make an economy worse.

Advertisements

Paul Ryan: Fiscal Hawk?

Mitt Romney, from the beginning of his campaign, has struggled to convince voters that he is truly conservative, especially in a fiscal sense.  Republican primary voters chose him as the most likely candidate to defeat Barack Obama, but the “moderate” label stuck to him.

This morning, Romney announced Paul Ryan as his running mate.  Ryan is known most famously for his “Path to Prosperity”, a proposed budget popular with fiscal conservatives.  So does the Romney/Ryan ticket now have fiscal credibility?

Not so fast.  It’s true that Ryan has more of a “fiscal hawk” reputation than the other short-list VP choices, but this says more about the rest of the short list than it does about Paul Ryan.

I like Paul Ryan.  I do not question his motives or intentions.  But his much-touted Path to Prosperity doesn’t balance the federal budget until 2035.  That’s a long Path, and the American people will grow weary long before reaching the Prosperity.  There are 6 presidential elections and 12 congressional elections between now and 2035; what is the likelihood that the Path to Prosperity, if enacted, would survive without repeal until 2035?  In practice, Paul Ryan’s proposal would not balance the federal budget, even if that was his intention.

Governor Luis Fortuño is about to achieve his goal of balancing the budget of Puerto Rico in 5 years.  Ron Paul would submit a balanced federal budget in 3 years.   Gary Johnson, running for president on the Libertarian ticket, would submit a balanced budget in his 1st year.  Mitt Romney, even with Paul Ryan at his side, will not submit a balanced budget.  Not now, not in 2035, not ever.

The selection of Paul Ryan for VP gives me some hope that the GOP wants to see themselves as the party of small government, and one day this may evolve into actually being a party of small government.  But for now they are still the party of marginally-smaller government, and the inclusion of Paul Ryan reinforces this perception rather than changing it.

The Chicken Sandwich War of 2012

I did not plan to comment on the Chick-Fil-A situation, but I greatly underestimated its longevity in the national consciousness.  For whatever reason, this story continues to resonate.  So here’s the Chicken Sandwich War from where I stand.

Last week, the House of Representatives passed a bill authorizing a full audit of the Federal Reserve.  (The Senate version, S202, is tabled indefinitely.  Direct your inquiries to Harry Reid.)  That night I flipped through the television news channels to see how this legislation would be covered in the mainstream media.  While I expected a negative reaction from the pundits, I did not expect what I actually found — almost complete silence on the matter.  What national emergency had pre-empted this crucial discussion about the role of central banking in the United States economy?  In short, chicken.

Let me say that I respect those who act on their principles.  If adjusting your Chick-Fil-A consumption to either boycott or support the restaurant is a meaningful stand for you, then that’s fine with me.  But this is not a news story.  It’s not even a real discussion about same-sex marriage. It almost became a news story about the powers of local government when mayors started to ban Chick-Fil-A from their cities, as the question could’ve been asked, “Under what circumstances can mayors ban private businesses?  Is religious belief an appropriate basis for such action? What are the logical consequences of such a policy?”  But not enough people actually asked those questions, so once again we are left to argue over chicken.

I made this plea on Twitter in 140 characters, but let me write it properly here.  I know that the Chicken Sandwich War seems important now, whichever side you support, but in a month nobody will remember that it even happened.  No real policy is shaped by this exercise.  Meanwhile, significant events continue to occur.  If you aren’t as interested in the fate of the Federal Reserve audit as I am, then there are still plenty of wars, fiscal issues, monetary issues, and personal liberty issues that are worth discussing.  In fact, have a real discussion about same-sex marriage if that’s on your mind.  But please, let’s stop using fast food chicken as a proxy for marriage.  It doesn’t make us think seriously about marriage.  It only makes us hungry.

“A bank is always inherently bankrupt.”

“[A bank’s] liabilities… are due instantly, on demand, while its outstanding loans to debtors are inevitably available only after some time period, short or long as the case may be.  A bank’s assets are always ‘longer’ than its liabilities, which are instantaneous.  Put another way, a bank is always inherently bankrupt, and would actually become so if its depositors all woke up to the fact that the money they believe to be available on demand is actually not there.”

— Murray Rothbard, The Mystery of Banking, page 99, discussing a peculiar feature of fractional reserve banking.  Italics are Rothbard’s.

The book is available for free at http://mises.org/document/614 .  Select PDF File or eBook.

Hello Blogosphere!

Well now it’s official… I’m #justablogger too.

I am a mathematician by day, and a supporter of the movement for greater liberty and smaller government in the United States.  I have recently taken to Twitter ( @EricNumeric ) as a means of expressing these ideas, but not everything worth saying can be summarized in 140 characters.  By creating this blog, I will be “at liberty to say” what needs to be said, unconstrained by a character limit.  Yet Twitter is an important tool in its own way, so the @EricNumeric account will remain active for now.  I am not a high-volume tweeter; I try to make every word worth your time.

Over time I will certainly describe how I came to believe what I do about the role of government, and discuss some of the events and thinkers that influence my perspective.  But to write this narrative from start to finish would take dozens upon dozens of pages, so inevitably it must instead emerge in pieces as each piece becomes relevant.

Of course I am still learning and refining my viewpoint as I read and listen and observe.  At times I will share what I read and learn.  Likewise I will comment on current events.

If you choose to read the blog, you can expect intellectual honesty — everything I write is correct to the best of my knowledge.  When errors are made, I will do my best to correct them.  On the other hand, the purpose of this blog is NOT to argue with people.  I may or may not respond to comments, and this does not necessarily reflect my opinion of the comment.  Factual corrections (with proof) and polite discussions are welcome, regardless of whether I respond.  Vitriol and outright factual lies are subject to deletion.