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-By Caleb Jones
The argument is standard Keynesian stuff; if the government forces people at gunpoint to produce more stuff, even if that stuff is bombs and tanks, then there’s more economic activity, everyone has a job, and the economy gets better! Yay!
If that were true, then why don’t America and China spend trillions of dollars, build up gigantic robot-controlled fleets of warships and drones, block off a part of the Pacific Ocean, and just have them blow the crap out of each other? If war and the mass destruction of capital are “good for the economy,” why don’t we just do that every few years? The economies of those two countries would be booming forever! Right?
Henry Hazlitt talks about the example of the broken window. Some people actually think that if some teenage hoodlums smash the window of the local baker, that’s “good for the economy” because now the window manufacturer and local window installer have new work; the baker has to pay them to replace the window. That’s new economic activity, so it must be good. Right?
The entire concept of economics is the management of finite resources. The broken window concept has the same problem as the “war is good for the economy” idea, in that the baker only has a finite amount of money. He was going to use his $1500 of spending money, now needed to fix the window, to buy a new suit. Now he can't buy that suit; he must fix his window instead.
Compare these two scenarios:
1. The baker uses his $1500 to fix a broken window. Result: He has a non-broken window.
2. The window is never broken. The baker users his $1500 to buy a new suit. Result: He has a new suit and a non-broken window.
In the second scenario, his economic condition has increased. In the first, it has remained the same, even though it cost the same as the second scenario.
Therefore, no, it’s not good that someone smashed his window. The problem is that when you see the window installer working away, that’s all you see. You don’t see the tailor not making a new suit for the baker. The new economic activity that is prevented by some jerk smashing a window remains unseen by everyone, but the economic activity of fixing the problem is seen by all, so everyone assumes that the smashed window was a good thing, when in fact it was a bad thing.
If government spends $3 million to build a new bridge, the only thing people see is all these construction workers building a new bridge, and eventually, a new bridge. What they don’t see are the thousands upon thousands of employees and businesses that now have less money and produce less economic activity because of the $3 million taxed away from them that was used to pay for the bridge.
This doesn’t mean you should never build a bridge. If you truly need a bridge based on traffic conditions in that area, you should build one, and make sure it lasts as long as humanly possible. But once that bridge is built and it does the job, you shouldn’t immediately build a second one right next to it, and a third one right next to that because of “infrastructure!” or because it “creates jobs” or because it’s “good for the economy.” Instead, doing such a thing actually destroys jobs and is bad for the economy.
This is hard for people to understand because you rarely actually see the negative economic consequences of government spending with your own eyes. This is one of the many reasons why libertarianism is so unpopular while socialism is so widely loved. The positives of socialism are so much more immediate, simple, and visual. The benefits of small government are usually invisible and hard to grasp.
This is why it’s economically bad for someone to smash the baker’s window, and it’s economically bad whenever your country goes to war. And I haven’t even touched on how economically unfavorable it is when you get thousands of your own citizens killed during a military conflict.
I suppose one could concoct a bizarre scenario where if an entire war consists of the USA pressing a button and dropping a nuke on a distant country, immediately ending the “war” with no US losses or extra money spent, then that would be good for the economy somehow because you’re wiping out a possible competitor. Or something.
The problem is that A) that’s not how the US ever goes to war (instead, it invades with troops and drones and then sits there forever like the Roman Empire), and B) if you wipe a country or city off the map, you destroy all the economic activity of that country/city, negatively affecting all other nearby countries/cities, eventually adversely affecting the economy of the US. We live in a very small world these days; what happens internationally affects us. (That’s why I’ve always said that a full-blown WWIII is extremely unlikely; too many elites would lose money.)
War is bad for the economy.
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