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Opinion from a Libertarian ViewPoint

Posts Tagged ‘Frédéric Bastiat’

Don’t Fall for Biden’s Latest Talking Point | Mises Wire

Posted by M. C. on November 3, 2023

The problem with this thinking, Bastiat and Hazlitt explain, is that it cites only the economic activity that can be seen to result from the broken window. What goes unseen is the cost—all the economic activity the shopkeeper would have instead spurred had he not been forced to buy a new window.

And because the shopkeeper would have preferred to spend the $50 elsewhere, the breaking of the window can only be considered a net loss. The glazier benefits from the shopkeeper’s loss, but the shopkeeper and therefore the overall economy are made poorer.

https://mises.org/wire/dont-fall-bidens-latest-talking-point

Connor O’Keeffe

As the long-hyped Ukrainian counteroffensive against Russia stalls and a new war in Gaza draws the world’s attention, American support for funding Kyiv’s war has waned. In an effort to reverse this, the Biden administration is changing its messaging. A Politico report from last week details how White House aides are now telling members of Congress to sell Americans the lie that continuing to send money and weapons to Ukraine is good for the economy.

President Joe Biden made this point himself when he introduced a $105 billion proposal to send military aid to Ukraine, Israel, and Taiwan:

We send Ukraine equipment sitting in our stockpiles. And when we use the money allocated by Congress, we use it to replenish our own stores, our own stockpiles, with new equipment. Equipment that defends America and is made in America. Patriot missiles for air defense batteries, made in Arizona. Artillery shells manufactured in 12 states across the country, in Pennsylvania, Ohio, Texas. And so much more.

With this new talking point, the Biden administration is echoing Senator Mitch McConnell, who has for months been saying that the war in Ukraine is an excellent deal because American companies get paid, the Russian regime is weakened, and only Ukrainians have to die.

Setting aside the morality or practicality of Biden and McConnell’s foreign policy ambitions, the argument that all this military spending is good for the American economy relies on one of the oldest, most pervasive economic fallacies in our political discourse—the broken window fallacy.

First outlined by French economist Frédéric Bastiat in his essay “That Which Is Seen and That Which Is Not Seen” and later expounded upon by economic journalist Henry Hazlitt in his book Economics in One Lesson, the broken window fallacy is the false belief that spending money on restoring things that have been destroyed can make an economy richer.

To make this point, Bastiat used the example of a broken shop window. After his careless son breaks a pane of glass, a shopkeeper is forced to hire a glazier to repair the damage. A group of bystanders reflect on the situation and question their impulse to condemn the boy. After all, they ask, “what would become of the glaziers if panes of glass were never broken?”

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Taxing Capital Leads to Capital Consumption | Mises Wire

Posted by M. C. on May 16, 2023

To elaborate, as interest rates increase, capital’s opportunity cost increases. Capital requires a higher overall gain from equity to compete with the higher passive interest income. Increasing taxes on capital increases the chance of capital consumption. If an industry is faced with capital consumption by decree, there is only one strategy, a staged retreat strategy. Production ultimately halts. Hence, capital taxes divert resources from productive activities to passive, debt-yielding types of activities.

https://mises.org/wire/taxing-capital-leads-capital-consumption

Daniel Moule

The Misesian tradition provides essential insights into the nature of capital. From Frédéric Bastiat to Murray N. Rothbard, Austrian capital theory excels.

Bastiat illustrated gains from capital by giving us the anecdote of the neighbor who wanted to borrow a timber planer. Rothbard gave us the examples of royalties in the extractive industry to illustrate capital consumption. The list goes on. Often, capital’s exceptional output is because it behaves as both nonlinear and time specific.

Historically, societies have been reluctant to tax gains from capital. For example, capital gains tax was only introduced in Australia in the mid-1980s. Many of the gains from capital assets continue to receive favorable tax treatment.

The Laffer curve attempts to model government revenue against a taxation rate. Rothbard criticized the Laffer curve by saying that it should be a “straight line.” I understand Rothbard to mean that at some point the tax collected from deployed capital does not gradually decline with an increased tax rate, as the Laffer curve would suggest. Rather, the tax collected on capital gains immediately halts due to capital’s opportunity cost. Capital shifts to alternative passive investments based on the entrepreneur’s subjective value and imputed costs. The concept can be illustrated by the following formula:

[expected gain from capital] + [starting capital] − [taxes]

must be greater than (>)

[interest] + [principal] on an alternative passive investment

The opportunity cost of capital is therefore the risk-free interest rate obtainable on a passive income stream. No self-respecting entrepreneur sets out to lose capital when they can just put the money on term deposit.

An equity capital investment becomes less attractive as deposit rates rise. An equity capital investment also becomes less attractive if capital consumption, via taxation, occurs. To use a sporting analogy, capital may “sit on the sidelines” as entrepreneurs consider alternate investments. That sideline is often interest-bearing deposits. Where the expected net gain from capital only equals the alternative passive interest income stream, then said passive income stream is the preferred investment for two reasons:

  1. There is a lower chance of capital losses on the risk-free rate.
  2. There is a lower chance of capital consumption via taxation changes.

The first reason is straightforward. However, I see capital consumption as a more nuanced concept.

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The Broken Window Fallacy Reapplied

Posted by M. C. on June 14, 2022

Both Bastiat and Hazlitt saw that the government is the great window breaker, that destroyer of wealth that drives the economy backwards. The engine of creativity, recovery, and expansion is the private sector, completely unencumbered by state intervention. Ron Paul’s newest book is called Pillars of Prosperity: Free Markets, Sound Money, and Private Property. The title nicely sums up the message of the economics of freedom.

https://mises.org/library/broken-window-fallacy-reapplied

Llewellyn H. Rockwell Jr.

The claim of the Austrian School that has scandalized members of other schools for 150 years is the following. The propositions of economics are universal. The principles apply in all times and all places, because they derive from the structure of reality and human action.

What brought about economic growth, inflation, or the business cycle in China in 300 BC are the same institutions that drive phenomena in the United States in AD 2008. The circumstances of time and place change, but the underlying economic reality is identical.

That claim has made other economists—to say nothing of sociologists, historians, and politicians—scatter like pigeons. The Historical School poured scorn on this idea, and Carl Menger, the founder of the Austrian School, fought them tooth and nail. The Chicago School of positivists found the claim preposterous, and Mises and Hayek and Rothbard battled them. The Keynesians have long been outraged, and the postwar Austrian generation reasserted the truth. The socialists, who posit that rearranging property titles will transform all of reality, say that the claim is absurd, capitalistic nonsense.

But there it stands. No matter where or when, the essential prerequisite for economic growth is capital accumulation in a framework of freedom and sound money. The consequence of price control is shortage and surplus. The effect of money expansion is inflation and the business cycle. The effect of every form of intervention is to make society less prosperous than it would otherwise be.

The list of universals is endless, which is why every age needs good economists to explain and articulate the truth.

Well, I would like to add that there are universal fallacies too.

Frédéric Bastiat pointed to one: the belief that the destruction of wealth fuels its creation. He explains this by means of an allegory that has come to be known as the story of the broken window. Most famously it was retold as the opening of Henry Hazlitt’s Economics in One Lesson, which is probably the bestselling economics book of all time.

A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items, and the circle of rising prosperity will expand without end.

What’s wrong with this scenario? As Bastiat put it, “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.”

You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?

It is not a good thing to destroy wealth. Bastiat puts it this way: “Society loses the value of things which are uselessly destroyed.”

It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.

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End the Shutdown, Again | Mises Wire

Posted by M. C. on August 6, 2021

Ultimately, we cannot outsource or delegate responsibility for our individual health to doctors, politicians, or medical officials. We cannot live without risk, and we certainly cannot force others to accept vaccinations or inhibit their natural exhalations with masks. Time and time again, politicians mislead us, creating alarmism to justify their own desire for political power and control. America can survive a virus, but we cannot survive lawless government which assumes new powers whenever a novel virus appears.

https://mises.org/wire/end-shutdown-again

The Editors

Sixteen months ago, in March 2020, we argued for an end to government-imposed shutdowns of businesses, schools, churches, restaurants, and events due to the covid virus:

The shutdown of the American economy by government decree should end. The lasting and far-reaching harms caused by this authoritarian precedent far outweigh those caused by the COVID-19 virus. The American people—individuals, families, businesses—must decide for themselves how and when to reopen society and return to their daily lives.

Our claim was straightforward: government officials are singularly unqualified to consider the tradeoffs, economic and otherwise, behind their blunt and heavy-handed actions. They cannot assess risk for millions of individuals, they cannot decide what activities are essential or nonessential, and they cannot pay Americans to stay home and not work.

Since then, Frédéric Bastiat’s admonition that we consider the “unseen” results of state action has proven exceptionally wise. The economic devastation from shutting down the US economy will take years to fully grasp, especially in terms of opportunity cost. Congress and the Federal Reserve colluded to pump trillions of new dollars into the economy, dollars which unsurprisingly benefited the richest Americans and the biggest businesses. What this portends for inflation and average people’s savings is almost certainly negative. And the human toll, in terms of physical and mental illness engendered by the shutdowns—especially with respect to psychologically vulnerable children—is already enormous.

Beyond America, an estimated 121 million people in Africa, Haiti, and Venezuela may face starvation due to reduced food production last year.

Even accepting official government statistics, covid-19 “cases” (often asymptomatic) in the US are at about 35 million, or slightly more than 10 percent of the population. The infection fatality rate is debated, but certainly the virus is less than lethal for the vast majority who contract it—probably about 99 percent. And those 1 percent deaths are heavily concentrated among the over-eighty elderly and those with existing comorbidities. This is to say nothing of the fact that this infection fatality rate is not uniform for the whole population—it too depends on age and other demographics. Both groups could have been made safer at home while the rest of America simply took standard flu precautions.

This means the risk of hospitalization or death from covid-19 is exaggerated by government officials and media. But even if 10 million people had died, the underlying principle would be the same: government has neither the authority nor the wisdom to force Americans to shut down their lives and stay home. 

Few imagined America would face new covid restrictions in fall 2021. Yet the Biden administration now contemplates new federal covid restrictions, while states and cities across America consider new mask mandates and vaccine requirements to enter public places and businesses. The mayor of New York City intends to prohibit unvaccinated people from engaging in many activities come September. Journalists call for the creation of a no-fly list for the unvaccinated, while social media companies deplatform alternative sources of information regarding covid, vaccines, and alternative treatments.1 Meanwhile, the Centers for Disease Control and Prevention claims the bizarre authority to extend a nationwide eviction moratorium, which represents a blatant regulatory taking without compensation to property owners. Vitiating private rental contracts is an especially disturbing precedent, and a laughable detour from the “rule of law.” 

We strongly oppose all of these measures as deeply illiberal and incompatible with a decent, free society. It is not the job nor the right of politicians or health officials to wield authority over our physical bodies, compel medical treatment, or create an underclass of Americans. Whether any of these measures are legal, under federal, state, or local law, is a separate question, however dubious. But it is important to stress there is no public health exception to the federal constitution’s due process requirements. 

“Public health” is undefined and undefinable, like any aggregate measure. Individuals value different things, and accordingly make different choices concerning their diet, lifestyle, and personal habits. If government and health officials really care about covid or delta risks, they should focus on obesity, exercise, diet, and sunshine to promote natural immunity. Now we are told the delta variant of the virus justifies new government action. But all viruses evolve, and new ones often present themselves during flu season. If every new virus or variation warrants shutdowns or new vaccines, we will face an unending dystopian hellscape of state intervention in our medical decisions.

Ultimately, we cannot outsource or delegate responsibility for our individual health to doctors, politicians, or medical officials. We cannot live without risk, and we certainly cannot force others to accept vaccinations or inhibit their natural exhalations with masks. Time and time again, politicians mislead us, creating alarmism to justify their own desire for political power and control. America can survive a virus, but we cannot survive lawless government which assumes new powers whenever a novel virus appears.

Good Americans can and must resist new shutdowns, mandates, or restrictions. The 2020 shutdowns were not “worth it,” and we should not make the same mistakes again in 2021.

Enough.

  • 1. We offer no opinion regarding the efficacy or safety of vaccines, nor of suggested prophylactic treatments like ivermectin or hydroxychloroquine. We stand by the principle of full and free expression, even when such expression takes the form of inaccurate or contested information. More importantly, who in government, social media companies, or publishing houses is so wise as to be annointed the decider of fact? And yes, private companies can deplatform people for spreading “misinformation.” The point is they shouldn’t, and they are illiberal in the broad sense when they do so.

Author:

The Editors

The Editors of the Mises Institute.

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Quotes From Dead Guys

Posted by M. C. on October 17, 2019

…For we are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence–on infiltration instead of invasion, on subversion instead of elections, on intimidation instead of free choice, on guerrillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations.

Its preparations are concealed, not published. Its mistakes are buried, not headlined. Its dissenters are silenced, not praised. No expenditure is questioned, no rumor is printed, no secret is revealed. It conducts the Cold War, in short, with a war-time discipline no democracy would ever hope or wish to match…President John F. Kennedy
Waldorf-Astoria Hotel, New York City
April 27, 1961

“The most urgent necessity is, not that the State should teach, but that it should allow education. All monopolies are detestable, but the worst of all is the monopoly of education.” – Frederic Bastiat

“Armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few.” – James Madison

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15 Trillion Gallons of Keynesian Goodness? – LewRockwell

Posted by M. C. on September 3, 2017

https://www.lewrockwell.com/2017/09/david-stockman/15-trillion-gallons-keynesian-goodness/

Harvey + government = the Perfect Storm.

Learn about the broken window and Corps of Engineering (government) planning.

……(Feroli) has proceeded straight to the “broken window fallacy” nirvana: the growth that destruction somehow always guarantees in a Keynesian world. If that was the case, why not just nuke the US and rebuild it from scratch, assuring triple digit GDP growth for decades to come.

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