The idea that a city being burned and looted (like has been happening in Minneapolis) could be an economic blessing sounds ridiculous—right?
And yet it’s precisely the thing that John Maynard Keynes and those of his ilk would say in regards to current events in the United States. In fact, politicians and bad economists have been repeating the same tired message for so long that even Frédéric Bastiat took pen to paper, all the way back in 1850, to refute it with his essay That Which is Seen and That Which is Not Seen which included his famous parable of The Broken Window. Here’s the story (very much worth reading!):
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade — that it encourages that trade to the amount of six francs — I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen.
If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
In the second, where we suppose the window not to have been broken, he would have spent six francs in shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window. Now, as James B. forms a part of society, must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labors, it has lost the value of the broken window.
Whence we arrive at this unexpected conclusion: “Society loses the value of things which are uselessly destroyed,” and we must assent to a maxim which will make the hair of protectionists stand on end — to break, to spoil, to waste, is not to encourage national labor; or, more briefly, “destruction is not profit.”
What will you say, Moniteur Industriel? What will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?
I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen.
The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention.
One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two.
Another, under the title of the glazier, shows us the producer, whose trade is encouraged by the accident.
The third is the shoemaker (or some other tradesman), whose labor suffers proportionately by the same cause.
It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favor, all you will find will be the paraphrase of this vulgar saying — what would become of the glaziers, if nobody ever broke windows?
Bastiat got it right. He also got it right when he wrote The Law on which we based our first book, The Tuttle Twins Learn About The Law. Bastiat understood how money simply changing hands doesn’t necessarily mean that value is being created, or that an economy is healthy—but many (most?) don’t.
Just three days after 9/11, Keynesian economist Paul Krugman penned an article in the New York Times. You’re not going to believe it, but this is what he actually said:
First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I’ve already indicated, the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.
Second, the attack opens the door to some sensible recession-fighting measures. For the last few weeks there has been a heated debate among liberals over whether to advocate the classic Keynesian response to economic slowdown, a temporary burst of public spending. There were plausible economic arguments in favor of such a move, but it was questionable whether Congress could agree on how to spend the money in time to be of any use — and there was also the certainty that conservatives would refuse to accept any such move unless it were tied to another round of irresponsible long-term tax cuts. Now it seems that we will indeed get a quick burst of public spending, however tragic the reasons.
Ladies and gentlemen, I give you the economics (and compassion) of John Maynard Keynes applied in real life. Facepalm. Keynes believed that all that was necessary to stimulate the economy was for people to be spending money. He argued that it didn’t matter why money was being spent—a broken window, a city being set ablaze in a riot, a terrorist attack in New York City—so long as money was changing hands.
You see, folks like Krugman and Keynes view an economy as nothing but a bunch of mathematical equations and points plotted on a graph. They don’t “see the unseen” as Bastiat did, and they don’t understand that economies are actually made up of individual people living and working and producing in order to serve each other, and in turn provide for themselves and their families. This phenomenon, which Ludwig von Mises explained in his book, Human Action, is precisely the reason that economies can never be centrally planned or centrally controlled.
Our most recent book, The Tuttle Twins and the Messed Up Market, is based on Mises’ Human Action and puts into simple-to-understand terms the way economies work and how human action (and in some cases, inaction) affects everyone else. Mike Rowe, of Dirty Jobs fame, recently used the analogy that an economy is like a quilt, and once you start cutting pieces out, and moving things around, then it gets all bunched up and won’t line back up again.
Mike’s quilt analogy makes a lot more sense than Krugman’s post 9/11 forecasting. Someone should give Rowe a Nobel Prize in Economics… Krugman’s is clearly worthless!
In spite of so much evidence to the contrary, in the coming weeks we will no doubt see articles and commentary on the “possible upside” to the destruction we’re seeing in Minneapolis. Talking heads and bad economists will try to tell us that sometimes destruction is a good thing because it creates more jobs, and puts money into the economy.
It’s okay, I think, to call those people liars.
F.A. Hayek, of The Road to Serfdom fame, devoted much of his work to deconstructing Kenesian myths and explaining the disastrous unintended (and often intended) consequences of governments attempting to centrally plan economies and people’s lives. Ethan and Emily get a taste of those unintended consequences in The Tuttle Twins and the Road to Surfdom. They find out (like many of us do) that they don’t particularly like it when government tries to “help” give some people what they want, because it ends up causing a lot of harm to others.
Several years ago the folks at Emergent Order put a fun spin on the Keynes/Hayek battle of economic schools of thought with a video titled Fear the Boom and Bust: Keynes vs Hayek. If you’ve never seen likenesses of John Maynard Keynes and F.A. Hayek square off in an epic rap battle… well, then you owe it to yourself to watch. Maybe you can even share it on social media in an effort to head off the Keynesian nonsense that will no doubt begin making the rounds once again.
A lot of adults never learn why Keynes was so wrong about basically everything, and yet our lives are directly affected by the foolish application of his ideas worldwide—everyday. Our books aim to help kids—and often parents, too—learn sound economic principles so that they can understand that which is seen as well as that which is unseen, and apply that knowledge in all areas of life.
Because an economy isn’t points on a graph and complex equations—it’s people living their lives and interacting with one another. And people’s individual choices and needs can’t be controlled and designed by central planners.