Tuesday, June 29, 2010

Heeding Hazlitt

David Axelrod, Senior Advisor to President Obama, recently advocated the Stimulus Bill (the American Recovery and Reinvestment Act of 2009):
"This summer will be the most active Recovery Act season yet, with thousands of highly-visible road, bridge, water and other infrastructure projects breaking ground across the country, giving the American people a first-hand look at the Recovery Act in their own backyards and making it crystal clear what the cost would have been of doing nothing...The Recovery Act is putting millions of Americans to work and helping the economy grow again."
Axelrod is correct in saying that the bill's spending provides employment and improves infrastructure. However, further analysis calls into question whether such spending actually helps the economy grow.

Distinguished economist Henry Hazlitt provides such analysis in his compelling book, Economics in One Lesson:1
"A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works—of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of 'providing employment' or of adding wealth to the community that it would not otherwise have had.

"A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary than the things for which the taxpayers would have spent their money if it had not been taxed away from them, there can be no objection. But a bridge built primarily 'to provide employment' is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. 'Projects' have to be invented. Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.

"Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.

"This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

"Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers.

"But then we come to the second argument. The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer.

"Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and radios, the unmade dresses and coats, perhaps the unsold and ungrown foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these non-existent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others."2
1. It's amazing that a book written 60 years ago directly addresses what Axelrod said just last week.
2. Henry Hazlitt. Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics, pg. 19-21.

Monday, June 14, 2010

Freedom and Happiness

I had a great day at work the other day. After hours of trying to figure out why the software I'd written wasn't working, I finally found the error in my code that was causing the problem. As a software engineer, one of the most rewarding parts of my job is successfully debugging code — finding and fixing my own mistakes. It's strange that part of my happiness requires that I make mistakes, because those same mistakes can cause frustration and delay! It's sometimes hard to understand what makes us happy.

This got me thinking about a friend of mine who moved from beautiful Palo Alto, California to blustery Chicago. I remember asking him why he'd want to leave such a great climate for cold and windy weather, and he told me that he'd become bored of the perfect weather and that he missed the rain and the cold. It struck me as odd that even though my friend would probably prefer nice weather on any given day, he was happiest when he experienced subpar weather some of the time.

The recipe for happiness can be puzzling, and it changes from person to person and from time to time. The inconsistent and unpredictable nature of happiness underscores the importance of giving individuals the freedom to find and bring about their own happiness, and makes me wary of any mandatory government program that is claimed to make life better for all people.

Take Social Security, the social insurance program that is funded by mandatory payroll taxes. Before Social Security was signed into law, President Franklin D. Roosevelt said, "There is no reason why everyone in the United States should not be covered. I see no reason why every child, from the day he is born, shouldn't be a member of the social security system." So FDR couldn't see any reason why people shouldn't have Social Security? Well what about if they don't want to? What if they want to spend their hard-earned money on something else? And who is anyone to say what should or shouldn't be a part of everyone else's life?

I think it's arrogant for anyone, even the President, to presume that any one thing will make life better for everybody. And while financial security can greatly improve a person's quality of life, government-imposed financial security undermines our freedom. As Benjamin Franklin put it, "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety."