Austrian Economist Henry Hazlitt said that “[t]he bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.” This could not be more relevant today.
Obama gave a jobs speech recently and spoke of building bridges as a way to help create jobs. One does not need to be an expert in Economics to see the problem with this way of thinking. Big government types just refuse to understand that it is impossible for the government to have a net positive effect on job creation by directly “creating” jobs.
When the government employs contractors to build bridges, it must first take money from some other place, to pay them. The bad economist, as Hazlitt calls him, points to the contractor jobs that are “created” as a result of government spending, but completely ignores the jobs that it destroys.
This is the Broken Window Fallacy. If you believe Obama and his economic “experts,” you should be able to create jobs by walking down the street and throwing rocks at all the windows you see. This would force those who own those windows to have to replace them, so by breaking them you are helping the companies that replace windows, get more business. Would you be helping the economy in this case? If you think like a bad economist, you would say yes. However, we cannot ignore what the owners of those windows were going to do with the money had you not forced them to spend it on new windows. Maybe some were planning to buy new suits, or TVs, or whatever. All you would have succeeded in doing, in this case, is transferring jobs from TV makers, suit makers, or whomever else, to the window makers. No new job is created.
If you have money saved and decide to replace your kitchen counters, that’s great, but don’t pretend you are helping your economic situation by doing so. Infrastructure spending is not a way to help the economy, it actually has a negative effect on it, which is why it should not be done with borrowed money, and it should not be done unless it is actually necessary.
It is a scary thought that those who run the country fail to understand this basic fact. The government cannot create new jobs, it can only transfer them. I know this is tough to swallow for those who really believe their job is to run everything, and that the country would just fall apart without their actions. It is their arrogance that prevents them from looking at the whole picture. They would rather lie to themselves and keep the illusion that they are helping, than to realize that maybe we would all be better off without them.
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