Freeman

PERSPECTIVE

No Silver Lining

Paul Krugman Should Return His Ph.D.

NOVEMBER 01, 2001 by SHELDON RICHMAN

Filed Under : Scarcity

We often see such comments after a hurricane, tornado, or earthquake. I never expected to see it after the horrors of September 11. But there was Paul Krugman, Ph.D. in economics and a New York Times columnist, writing it on September 14 for all the world to see:

Ghastly as it may seem to say this, the terror attack—like the original day of infamy, which brought an end to the Great Depression—could even do some economic good. . . .

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.

There is Frédéric Bastiat’s “broken window” fallacy writ as large as it could possibly be written. For just the sheer scale of Krugman’s commission of the fallacy perhaps he should be asked to return his Ph.D. It takes extraordinarily perverse vision to see a silver lining in the unfathomable destruction wreaked on New York that dark day. Does Krugman know enough to even be embarrassed by his remark?

For those who are new to Bastiat, the great nineteenth-century French classical-liberal economist, the broken window was his way of teaching us that understanding economic phenomena demands a look at the less-obvious consequences of an action or policy. He told the story of a shop window broken by a mischievous boy. As the neighbors gather to lament the shopkeeper’s loss, someone (a proto-Keynesian) points out that when the shopkeeper replaces the window, money will begin to circulate through the village. The glazier will buy a hat. The milliner will buy a shirt. And so on. The resulting economic activity will bestow benefits on the entire community.

Not so, says Bastiat. Had the window not been broken, the shopkeeper would have bought something he wanted and the money would have circulated anyway. But instead of being able to improve his situation, now he must spend the money merely to regain the position he held when the sun rose that morning. That is not a gain for him or the community. It is a loss.

The horrendous destruction of life and property on September 11 is an utter loss. Yes, billions of dollars will be spent to rebuild the lost assets. Investments will be made; people will be employed; concrete will be poured. But the tens of billions of dollars will be spent just to bring us back to where we were before, in material terms (the human capital is gone forever), when the sun rose on September 11. Think how far ahead we’d be had those crimes never occurred. In a world of scarcity, there are no silver linings in the destruction of wealth.

* * *

Cities have historically been a haven for the oppressed, yet they are also the source of the most illiberal ideas. Alexander Moseley tries to resolve that paradox.

Are libertarians really responsible for urban crime? Jim Peron examines some thinkers who believe the freedom philosophy breeds chaos.

The federal government imposes water-use standards for toilets throughout the land. Naturally, the commodes don’t work. Michael Heberling relates his experience.

The would-be planners of Americans’ energy use assume that the day of fossil fuels is nearing an end. The facts say otherwise, as Robert Bradley demonstrates.

Feminist opponents of capitalism are revising their conception of the housewife. The portrayal of stay-at-home moms has gone from pathetic dupe to potential child killer—but still a helpless victim of Western patriarchy. Wendy McElroy sees something wrong with this picture.

It’s been over ten years since Julian Simon won his bet against Paul Ehrlich, indicating that resources are not being depleted. Simon is gone, but the controversy rages on. Michael Mallinger has a recap and an update.

What if we trained musicians the way we train teachers? George Leef says the results wouldn’t be pretty.

The Industrial Revolution is generally regarded as a time of deteriorating living standards and increasing misery. Mises and Hayek knew better, says Thomas Woods Jr.

Some countries are prosperous and some are mired in poverty. That continues to mystify some people, although the keys to prosperity are anything but obscure. Aaron Schavey analyzes where wealth comes from.

As for this month’s columnists: Mark Skousen pays homage to Andrew Carnegie. Lawrence Reed has advice for the champions of ethanol. Doug Bandow prefers his cars decaffeinated. Thomas Szasz says we should seek the reasons for, not the causes of, human action.

Dwight Lee thinks transferable pollution permits are a better way to clear the air. Donald Boudreaux takes an ax to trade-adjustment assistance. Charles Baird relates Bastiat’s views on labor unions. And Christopher Lingle, confronted with the claim that consumption drives economic growth, replies, “It Just Ain’t So!”

Our reviewers report on new books by Israel Kirzner and Thomas Sowell, and others covering the history of wealth, the future of the post office, gold, and Japan.

ASSOCIATED ISSUE

November 2001

ABOUT

SHELDON RICHMAN

Sheldon Richman is the former editor of The Freeman and TheFreemanOnline.org, and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families.

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