FEMA and Katrina
There have been a lot of complaints that FEMA was too slow in reacting to Hurricane Katrina. Instead of discussing the merits or demerits of those claims, I’d like to share with you three quotes that seem highly relevant. After that, I want to briefly mention some things I’ve seen and heard in the past few days that seem particularly interesting in light of those quotes.Five years ago I bought an amazingly useful book. It’s for laymen who have no background in economics, and it simply explains – in plain English, with no jargon or buzzwords – some very basic economic principles and history.It’s not an advocacy book; it doesn’t advocate liberalism or conservatism or Marxism or anything else. It just says, “When X happens, here is how people affected by it respond, and here’s why.”It’s fascinating to me the way it illustrates how people really are pretty much the same anywhere, anytime. Over and over we see that a given policy that had a given result in America 10 years ago had the same result in Africa 100 years ago, in Europe 1,000 years ago, and in Rome 2,000 years ago.The quotes are in blue, and my observations are in black text. All italics were in the original text. I added other forms of emphasis. (Keep in mind that this was written two or three years before FEMA was absorbed into an even larger bureaucracy, the Dep’t of Homeland Security.)=== QUOTE 1 ===Monopoly is the enemy of efficiency, whether under capitalism or socialism. The difference between the two systems is that monopoly is the norm under socialism. Even in a mixed economy, with some economic activities being carried out by government and others being carried out by private industry, the government’s activities are typically monopolies, while those in the private marketplace are typically activities carried out by rival enterprises.
Thus, when a hurricane, flood, or other natural disaster strikes an area, emergency aid usually comes from both the Federal Emergency Management Agency (FEMA) and from private insurance companies whose customers’ homes and property have been damaged or destroyed. FEMA has been notoriously slower and less efficient than the private insurance companies.
Allstate cannot afford to be slower in getting money into the hands of its policy-holders than State Farm is in getting money to the people who hold its policies. Not only would existing customers in the disaster area be likely to switch insurance companies if one dragged its feet in getting money to them, while their neighbor received substantial advances from a different insurance company to tide them over, word of any such difference would spread like wildfire across the country, causing millions of people elsewhere to switch billions of dollars worth of insurance business from the less efficient company to the more efficient one.
A government agency, however, faces no such pressure. No matter how much FEMA may be criticized or ridiculed for its failure to get aid to disaster victims in a timely fashion, there is no rival government agency that these people can turn to for the same service. Moreover, the people who run these agencies are paid according to fixed salary schedules, not by how quickly or how well they serve people hit by disaster.
=== END QUOTE 1 ===Quote 2 is from a discussion of insurance, and the various ways in which people reduce economic and other risks.=== QUOTE 2 ===…Government programs that deal with risk are often analogized to insurance, or may even be officially called “insurance” without in fact being insurance. Federal disaster relief helps victims of floods, hurricanes and other natural disasters to recover and rebuild but, unlike insurance, it does not reduce over-all risk. Often people rebuild homes and businesses in the well-known paths of hurricanes and floods, often to the applause of the media for their “courage.” But the financial risks created are not paid by those who create them, as with insurance, but are instead paid by the taxpayers.
In short, there is now more risk than if there were no disaster relief available and more risk than if private insurance companies were charging people premiums which cover the full cost of their risky behavior. Sometimes the government subsidizes insurance for earthquakes or other disasters for which private insurance would be “prohibitively expensive.” What that means is that the government makes it less expensive for people to live in risky places – and more costly to the society as a whole, when people distribute themselves in more risky ways than they would do if they had to bear the costs themselves, either in high insurance premiums or in financial losses and anxieties.
There is an almost politically irresistible inclination to help people struck by earthquakes, wildfires, tornadoes and other natural disasters. The tragic pictures on television over-ride any consideration of what the situation was when they decided to live where they did. But government-subsidized insurance is, in effect, disaster relief provided for them beforehand, and is therefore a factor in people’s choices of where to live and what risks to take with other people’s money…
…The lengths to which some (private) insurance companies go to avoid being later than the competition was indicated by a New York Times story: “Prepared for the worst, some insurers had cars equipped with GPS to help navigate neighborhoods with downed street signs and missing landmarks, and many claims adjusters carried computer-produced maps identifying the precise location of every customer.”
The kind of market competition which forces such extraordinary efforts is of course lacking in government emergency programs, which have no competitors. They may be analogized to insurance but do not have the same incentives.
=== END QUOTE 2 ====== QUOTE 3 ===…Perhaps more than anything else, an understanding of basic economics can enable us to consider policy issues in terms of the incentives they create and the consequences that follow, rather then simply the goals they proclaim and how wonderful it would be the achieve such goals. Both within the government and in the private sector, individuals and organizations then to respond to the particular incentives facing them by trying to promote their own wellbeing.
When this adversely affects others, it need not be due to “bureaucratic bungling” within the government or to “greed” in the private sector. Perfectly rational and decent people tend to respond to the incentives confronting them. These incentives may need re-consideration more than the individuals need denouncing. (NOTE FROM BOB: more on this in my comments and observations below.)
While critics of various programs often point out “unintended consequences” that did more harm than good, many of those consequences were predictable from the outset if people had looked at the incentives created, rather than the goals proclaimed.
Very often either history or economics could have told us what to expect, but neither was consulted. It does not matter that a law or policy proclaims its goal to be “affordable housing,” “fair trade,” or “a living wage.” What matters is what incentives are created by the specifics of these laws and how people react to such incentives. These are dry empirical questions which are seldom as exciting as political crusades or moral pronouncements. But they are questions which must be asked, if we are truly interested in the wellbeing of others, rather than in excitement or a sense of moral superiority for ourselves. As historian Paul Johnson has said:
“The study of history is a powerful antidote to contemporary arrogance. It is humbling to discover how many of our glib assumptions, which seem to us novel and plausible, have been tested before, not once but many times and in innumerable guises; and discovered to be, at great human cost, wholly false.”
We have seen some of those great human costs – people going hungry in Russia, despite some of the richest farmland on the continent of Europe, people sleeping on cold sidewalks on winter nights in Manhattan, despite far more boarded-up (due to rent control) housing units than it would take to shelter them all. A desperate government in 18th-century France decreed the death penalty for anyone who refused to accept the money that the revolutionary leaders had issued, in ignorance or disregard of economics. After the astronomical inflation in Germany in the 1920s had destroyed millions of families’ life savings, many who were bitterly disappointed with their traditional leaders and institutions eventually turned toward someone who had just been a fringe fanatic before: Adolf Hitler.
No complex or esoteric economic principles would have been required to avoid these and other human tragedies around the world. But it would have required people to stop and think, instead of being swept along by emotions, rhetoric or the political pressures of the moment. For those who are willing to stop and think, basic economics provides the tools for evaluating policies and proposals in terms of logical implications and empirical evidence.
===END QUOTE 3 ===In light of the above, here are three things I’ve noticed…1) On Saturday September 3rd, President Bush said, “We will not let bureaucracy get in the way of saving lives.” I may be wrong, but as soon as he said that it struck me very strongly that this was a tacit admission that that had already happened and/or was currently happening.2) On the same day, Homeland Security Director Chertoff said, “This…perfect storm…exceeded the imagination of the planners…” When the levees broke, Chertoff indicated, it was a “second disaster” that was outside the box in which the planners had operated. Fair enough – let’s give the benefit of the doubt and recognize that it is simply not possible to plan for every possible contingency. That’s why they call it an “emergency.”But a few hours later, he said that “…the Federal Government will break the mold on rescue operations.” In other words, they hadn’t “broken the mold” yet but they were going to – even though they knew that the levee breaks had “broken the mold” of their planning more than four days earlier.3) It took the Department of Health and Human Services eight days to set up medical stations in the area, and it also took them eight days to set up a website for medical professionals who wished to volunteer their services.Why did these things happen?I believe that employees at FEMA and HHS, with occasional exceptions such as exist in any large organization, are absolutely dedicated to doing their jobs to the best of their ability. I want to re-iterate something quoted above: “Perfectly rational and decent people tend to respond to the incentives confronting them. These incentives may need re-consideration more than the individuals need denouncing. “The question is, what exactly does “doing their jobs” mean? Let’s start by recognizing that every large organization has bureaucrats, people who deal with paperwork and accounting and correspondence and compliance and personnel and all those sorts of things. There’s nothing wrong with any of that; those are necessary functions if the organization isn’t to descend into utter chaos.Private companies also have producers. I’ll use a manufacturer of widgets as an example, but the same thing applies to a company selling services rather than physical goods.Producers design the widget. Other producers build it. Others transport it. Others sell it – whether the customer is another manufacturer, a wholesaler, a retailer, or the general public. The ultimate result of all these producers’ activities is that at the end of the line, the customers trade their money for the company’s widgets. If that doesn’t happen, the company ceases to exist.Therefore, within that company, even the non-producers understand that “doing their job” ultimately means supporting the producers in their efforts to satisfy the customer. And that shapes (to return to that quote) how they “tend to respond to the incentives confronting them.” Their incentive is to keep their job, and the way they do it is by contributing to the production and sale of widgets. They understand that a failure to serve the customer well can very easily mean that the company shrinks or goes bankrupt, because there are other widget companies working every day to take those customers away.But what of an organization to whom that last sentence does not apply? What does “doing their job” mean to FEMA employees? What is the job description?
FEMA’s revenue does not come from the people they serve, it comes from taxpayers via Congressional authorizations. So when we think about how they might “tend to respond to the incentives confronting them,” a very different picture emerges. The one overriding incentive is to do whatever is required to keep that Congressional funding coming. That’s the one task – rather than providing satisfactory service to the people they serve – that keeps the doors open and the paychecks coming.If the only way I could maintain my paycheck was by satisfying Congress, believe me, I’d work HARD to satisfy Congress – which means doing my job exactly as they have specified that they want it done. Other considerations, if any, would be secondary to that.So what does that mean? It means documenting everything in triplicate. Keeping the files up-to-date. Scheduling meetings, being on time for them, and writing memos about them. Complying with all existing rules and plans – which certainly doesn’t include “breaking the mold,” as Secretary Chertoff described it. It means following procedures in the exact way Congress wants them followed. Generating an endless stream of memos to document that you’ve done all these things. Submitting proposals. Keeping the files up-do-date, especially your CYA file. It means accepting that nothing else can be done because “we don’t have a form for that.”
I want to re-emphasize that it is entirely rational for FEMA employees to behave this way, because that’s the job description. That’s precisely what they are paid to do. They want to keep their jobs just as much as you and I do, and they are in a situation and a system where providing good service to, for instance, hurricane victims, has absolutely nothing to do with keeping their jobs or with keeping the revenue flowing in. The way they keep jobs and revenue is by never, ever, ever going “outside the box.” And once again, if I were in that situation (assuming I wanted to keep my job) I’d do exactly the same thing.I might wish that I could do more. But I would also realize that if I get fired for not following procedure, I won’t be able to do anything for anyone – not for hurricane victims, and not even for my own kids.Think back to our widget company, where supporting the producers is Job One, because they serve the customers who provide the funds that keep the doors open and the paychecks flowing. Compare that with FEMA (or the Dep’t of Motor Vehicles, or any other government agency), where the people who serve the “customers” are NOT the producers of revenue. From an institutional perspective, the incentives and the constraints are completely different – so why should anyone be surprised that the activities and priorities of the employees are likewise completely different?At FEMA, the “producers” are the people who create the reports and charts and graphs and all the other paperwork that gets presented to Congress, in order to keep the funding going. Clearly, those kinds of activities are unrelated to getting food and water and medicine to people in New Orleans who may well die without it. Yet those producers – as in any other organization – are the most important people at FEMA. If they fail, the organization dies. So it is entirely rational for everyone to do their job in such a way as to maximize their chances of success, by following procedure to the letter and by never, ever going outside the box.So let me get back to my original questions. Why did President Bush seem to tacitly admit that bureaucracy had gotten in the way of saving lives? Why did Director Chertoff admit that FEMA had not “broken the mold” (i.e., gone “outside the box”) more than four days after Katrina broke it? Why did HHS take eight days to set up medical stations? Why did they take eight days to set up a website for medical pros wishing to volunteer? Why did so many other things that I haven’t even mentioned take so long?I have no solution to offer, because I believe that the problem is built in to very nature of FEMA or HHS. That's why the first six words I quoted in Quote One were, "Monopoly is the enemy of efficiency." That's equally true whether the monopoly is owned by private investors or by the Federal Government.In regard to this problem, I don’t think that it makes any difference at all who the director of FEMA is, who the mayor of New Orleans is, who the President of the United States is, or who the governor of Louisiana is. This problem with institutional incentives and constraints existed long before any of them were elected and will continue to exist long after they’re gone. That’s why, earlier, I didn’t ask “What is the solution?” Instead I asked “Why did these things happen?” I’m sure that I haven’t provided the full answer, but I think that the things discussed here are an important part of it.
Read First: Why I Write These Things
As you know, sometimes I like to share my thoughts on various issues. I've often been asked why I do that, and I've offered some answers that were true enough, but that did not entirely satisfy me; they seemed incomplete. I'm about to share with you three sentences (not written by me) that give, in my opinion, the perfect answer to that question.I've mentioned that such writing is simply "something I do when I can't sleep," and that I think it helps to lower my blood pressure to get things off my chest, and I just flat-out enjoy the act of writing about these things - and those are all true. With so many important issues “on the table” right now, I want to do everything I can to influence not what people think, but rather to influence people to think in the first place....to avoid the fatal error of attempting to use emotion as a means of cognition. That's why, when I ask you to reply to me on these topics, I often say "...don't tell me how you feel about this, tell me what you think about it."(Why do I call it a "fatal" error? Well, for one example, that's exactly what the P.M. of Great Britain, Neville Chamberlain, did in the 1930's when he decided to try to "appease" Hitler. Millions died unnecessarily because of that error. History books are full of other examples, as are many people's lives.)I've talked about fighting the syndrome in which people believe a certain thing because it is widely accepted; the "everybody-knows-the-Earth-is-flat-so-who-am-I-to-question-it?" syndrome. And that's a fight that I believe is worth fighting. Things don't get better when everyone passively accepts the status quo.Although we may like to believe that freedom is the natural state of mankind, history shows that freedom is very much the exception, not the rule. In the realm of politics, tyranny is mankind's "default option," and like a default option in a computer it is what will happen one hundred percent of the time unless specific steps are taken to cause freedom to happen instead.
If you don't believe this, well, then to be honest you need to read more history. In nature, an organism that doesn't move, or that moves in pursuit of the wrong objectives, ends up dead. The same is true of societies, cultures, nations, and political systems. If I can successfully encourage people to just not give in to inertia, and thus to resist the “default option,” I believe I'll at least have done a little bit of good in this world.I've said that there are ideas out there that are so important to me that I want to do everything I can, within my limited ability and reach, to spread them. In effect I'm saying: "Look, I know what the conventional wisdom is on this issue. But maybe you should consider looking at it this way instead, even if just for a minute or two. Here's why I think you should consider looking at it that way, and here's what will happen if enough people do the same."That last statement gets a lot closer to the full truth of why I do what I do.(I want to be very clear on this: Most of those ideas did not originate with me. There are people such as Ayn Rand, Thomas Sowell. Leonard Peikoff and others whose ideas I consider vitally important. Their ideas have been a huge influence on me not only as an amateur commentator, but as a musician and teacher and husband and father and even as an IT guy, and in lots of other ways. I don't pretend to be able to think on their level - but if I can do something that helps spread their ideas, then I'm glad to do so. I think it's important.)But recently I was reading a book about PBS by Laurence Jarvik, and I found three sentences that say it better than I've been able to say it in the past 20 years:====================================
In the preface to the 1982 edition of Capitalism and Freedom, Milton Friedman described the "tyranny of the status quo." He pointed out that it is extremely difficult by intellectual argumentalone to persuade those with conventional opinions that there isa need for change, but that when a crisis occurs, circumstancesmake change necessary, and the change is "produced by experience , not by theory or philosophy." As Friedman concludes, "The actions that are taken depend on the ideas that are lying around."
====================================And that captures exactly what I am trying to do: Leave some ideas lying around that may someday lead to actions being taken. (Although I’d argue that it is exactly "theory and philosophy" that lead to those ideas lying around in the first place.) I leave them lying around in your Inbox or in my blogs, and then hope like hell that two things happen:1) You'll consider picking them up and using them when the time is right, and2) You'll "leave them lying around" in as many other people's Inboxes as possible. I hope you'll forward this page's URL to a whole lot of folks after reading my stuff. But even if you only forward it to one or two people, I'll be appreciative nonetheless.=======================================Additional thoughts, a few hours later:No matter what the justification, tyranny always boils down to one thing: The notion that some people are to be sacrificed - whether existentially, financially, or in any other way - for the benefit of others. I defy anyone to show me an alleged "justification" for tyranny that violates this axiom. Tyranny takes many forms: there is the tyranny of the philosopher-king, the proletariat, the jihad, the Volk, the anointed, the "greatest good for the greatest number," the majority, the minority, the "will of the people," the outright dictator, the "ordained by God," and so forth.There are governments that sacrifice the poor for the rich, and others that sacrifice the rich for the poor – and if enough people believe that those are the only two alternatives, then the entire concept of non-sacrificial societies that protect the rights of all will be eliminated from discussion and, eventually, from human awareness.But the question "Who is to be the beneficiary of these human sacrifices?" is, at best, secondary. It doesn't matter who the beneficiaries are. No ends justify those means.Iit doesn't matter if those to be sacrificed are the Jews or Africans or the poor or the rich or the socialists or the capitalists or the men or the women or the Gypsies or the Slavs or speculators or farmers or old folks or kids or businessmen or laborers or artists. All human life is equally valuable, which means that all forms of human sacrifice are equally evil.The identity of the victims and of the beneficiaries is irrelevant in terms of the morality involved.The better the ideas that we leave "lying around," the more resistant we are to tyranny.So: What ideas areYOU leaving lying around these days?Thanks as always...
All Groups, Not Just Some
Yet another e-discussion has resulted in something I'd like to share with my online friends. You'll be glad to know that this one's shorter than usual. I just wish I had sent it out sooner, because to me it discusses the most important political/economic concept I've dealt with in a long, long time.In the upcoming campaigns, politicians and "spokesmen" and "leaders" of all kinds will depict certain programs and policies as "successful" in order to suit their own political purposes or enhance their own careers. They do so because they can get away with it; they can get away with it because we let them; and we let them because nobody taught us what is perhaps the single most important paragraph in the history of economic thought. This is from Henry Hazlitt's classic treatise, "Economics In One Lesson.":========================================="...From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
=========================================I would add that this principle, of course, applies to more than economics. It is only the intentional violation of this principle that has made possible the success - if you wish to call it that - of thinkers and writers from Galbraith to Kant to Kynes to Lenin to Earl Warren to (perhaps most of all) John Maynard Keynes - and it was only widespread lack of awareness of this principle that made these thinkers and writers and their ideas popular, whether with the intelligentsia or the general public.Thomas Sowell points out how "the anointed" (social observers and tinkerers who fancy themselves on a far higher moral plane than you or I) try to use verbal tactics to substitute for substantive argument in an example of this principle. This is typically done to justify the third-party decision-making of which the anointed are so fond, particularly when the third parties are the anointed themselves. Being third parties who dictate to others from above, they pay no penalty for being wrong - unlike those of us to whom they dictate. Although ideally words should represent ideas, the anointed often use words as ways of avoiding meaningful discussion of ideas or to hide the fact that they haven't any ideas. Sowell discusses how easy it is to make a plausible-sounding case on behalf of a particular policy by merely pointing out that "the people who benefited from it found it beneficial." i.e, "We should expand Federal disaster relief [or corporate welfare] because Federal disaster relief [or corporate welfare] is beneficial to those who receive Federal disaster relief [or corporate welfare] because they benefit from it." Which of course directly contradicts Hazlitt's admonition to trace "the consequences of that policy not merely for one group but for all groups," not to mention being a fine example of circular, and therefore meaningless, logic. (Nonetheless, such "logic," when accompanied by the proper delivery, can seem quite convincing to those who have not been intellectually armed against this tactic. The "serious and thoughtful" delivery technique seems to work well for many.)Sowell's example is what would in mathematics be called an "identity" - a self-referencing equation proving nothing. (The equation 1=1 is an identity.) What fools so many is that an identity has all the outward appearances of a valid mathematical or statistical proof. The same misleading outward appearances fool many of us in the realm of political discourse - such as when policy advocates flaunt reams of meaningless statistics, with a pronounced attitude of great indignation at the idea that this program might not continue to be expanded. Not to beat this point to death, but it must always be remembered that these arguments boil down to one meaningless statement: "The people (or groups) who benefit from this program find it beneficial."In some fields this is called a "tautology." If you ask me how far it is to Omaha, and I reply by saying, "It's as far as it is" - that's a tautology. Once again, it is self-referencing. It has the outward appearance and form of a valid sentence that means something, but in reality means nothing.(There is a related but separate purely political aspect: The politician who is also thinking, "The more people who believe that they benefit from programs I support, the more votes I'll get." This is an example of using your own money to buy your vote. But this discussion is more about economics than politics, so I'll put that issue aside.)I am compelled to depart pure economics, for a few paragraphs, in favor of outright commentary...As an example of the "It's beneficial because it benefits the beneficiaries" approach: If the Federal government were to impose a new income tax of $1,000 on every American taxpayer, and then were to distribute these funds equally among all left-handed guitarists, it would be hard to argue that left-handed guitarists did not find this program beneficial. TV interviews of left-handed guitarists who "support the program" would be solemnly regarded as evidence of "widespread public approval." The New York Times would run a six-part feature on the "meaningful contributions to society" that are only now being made by left-handed guitarists. Radio psychologists would wax poetic about the "beneficial impact on self-esteem" experienced by left-handed guitarists, and would go on to highlight the benefits of "mainstreaming" that will occur as a result. However, they will caution left-handed guitarists to "preserve all that is unique and beautiful about their culture, " and to resist "societal pressure to acculturate too quickly." They will be advised to "stay in touch with their left-handedness."Advocates of the program could point to massive amounts of statistics "proving" how beneficial it is; they could discuss all the "unmet needs" that are being filled; they could point to all of the "expanded educational opportunities" that have been provided; they could triumphantly applaud the "improvements in children's access to health care" that have been created (and after all, who could oppose THAT?); they could boast of how this program is "breaking the cycle of poverty" and "eliminating the root causes of crime" for left-handed guitarists. If so-called "obstructionists" and "reactionaries" and "outmoded classicists" point out that this program unfairly imposes costs on others, many of whom find themselves in more dire consequences than those faced by left-handed guitarists, their actions will be labeled as "merely the latest example of attempts to cut taxes for the wealthiest five percent," they will be told that this program is merely a "redress of prior inequities," compensation for the "legacy of left-handedness," a compassionate effort to "make reparations for past grievances," an example of "social justice" enacted on behalf of "blameless victims."And perhaps most of all this program will be presented as a way of overcoming "societal biases" that are "endemic to Western culture."All of that is a far, far cry from proving that this program should be pursued, implemented, or expanded. Nor does any of it address the damage done to all citizens who are not left-handed guitarists. There is one thing, however, that they won't overlook: Before they close the press conference, you can be sure that they will utter possibly the seven most expensive syllables in politics: "But there's more yet to be done..."To say "the people who benefited from it found it beneficial" is to merely engage in tautology. But if that tautology is delivered with enough conviction, outrage, gravitas, seriousness, feigned honesty, or other technique designed to reach a specific demographic; if it is delivered from behind a podium, near a microphone, upon a stage, or in front of a TV camera; if it is delivered by someone who is either accurately or inaccurately described (by himself or others) as a "leader" or "spokesman" or "professor" or "analyst" or "expert" or even "the conscience of the Senate" - well, then, it tends to be taken very seriously, even by people who know better.Who are these people who take it so seriously? They are the people who will be voting in the next election, which is why I so fervently hope that you will forward this link to as many of them as possible, and that they will do the same.And now, to return - more or less - to economics...Unseen costs. Hidden consequences. Unmentioned side-effects. When told that program A will benefit Group B, always, always, always ask: What about Groups C, D, and E? How will it affect them? And might there even be conveniently-omitted negative effects on Group B, in addition to the positive effects mentioned?Hazlitt uses an example of a bridge. Suppose a community raises taxes in order to build a bridge...perhaps it's not all that urgently needed, or maybe it is, but in any case it must be a Good Thing because it provides jobs for local workers. Once the bridge is built - well, it's there. You can see it, it's real, it exists, you can even use it if you want to. In the face of that direct sensory input, it's easy to forget about the unseen. It's easy to forget about where that tax money would have gone - the lawnmowers and sweaters and basketballs and food and medical care that would have been bought, increasing employment in those industries. The services that would have been purchased. The money that would have gone into savings accounts, enabling banks to make more loans, resulting in more auto and home purchases, leading to more employment in those industries as well as an overall higher standard of living.It's easy to forget about those things precisely because they do not now exist. Instead, a bridge exists. Resources which would have gone towards those other things have instead been redirected into this bridge. You can see the bridge; you cannot see those other things because they do not now exist. But it's not just a matter of a direct trade-off; we didn't just trade a bridge "straight up" for those other things. In a free economy, and in the absence of government interference or coercion, capital flows from lower-valued to higher-valued uses. This is one reason why "the pie" keeps getting bigger, why everyone's standard of living can rise simultaneously. Economics is not a zero-sum game.
The only thing that can prevent this is government interference or coercion. So when the government steps in and forces capital to go where it would not have otherwise gone, that capital is being prevented from going to its highest-valued use. We have a name for that: We call it inefficiency. It means that one or more items of lower value have forcibly been substituted for one or more items of higher value. The proof is that if the lower-valued items were not in fact of lower value, no government intervention would have been necessary in order to bring them into existence.When government forces this kind of substitution, the result by definition is a lower standard of living for the society as a whole than would otherwise have existed. So it's not just an "equal trade." In this transaction, we all lose, except for the politicians who triumphantly point to the bridge."But what about those workers?" you ask. "Didn't they at least benefit from this?" Well, yes, they did - which is another way of saying that "something which benefits a certain group of workers is beneficial to those workers who benefited from it." We're back to tautologies again. The error (known as “the fallacy of composition”) lies in looking only at that one specific group of workers, rather than all workers. Suppose that it took 4,000,000 man-hours to build that bridge, meaning that 2,000 people were employed for one year. Wouldn't those 2,000 workers and all other workers have benefited more from allowing that capital to create, say, 2,500 permanent full-time jobs rather than 2,000 temporary jobs?Where did I get that 2,500 figure from? Always keep in mind that in a free economy only government can force capital away from higher-valued uses, which means that it is forced into places and projects where it is, again by definition, used less efficiently than otherwise would have been the case. If that capital is capable of creating 2,000 jobs when used inefficiently, it is surely capable of creating 2,500 when used at maximum efficiency. At worst, it would create 2,001 such jobs.Additionally, how does it benefit those 2,000 workers - along with all other workers - to live in a community with a standard of living that is now lower than it otherwise would have been? The answer, of course, is that it does not.And keep in mind that we are only talking about the labor aspects of the situation. This discussion does not even attempt to address the inefficiencies and waste inherent in the government purchase of supplies and raw materials for this project, when compared to how those items would have been purchased had they been allowed to flow to where they represent the highest-valued use of someone's private capital. But it is no secret, with a government that recently paid $900 apiece for toilet seats, that the differences in efficiency are staggering. Perhaps, for now, it would be sufficient to acknowledge that the incentives and constraints inherent in the private purchases of these items mitigate strongly in favor of efficiency, while the incentives and constraints inherent in government purchases of these same items - even if purchased for the same purposes - mitigate strongly in favor of inefficiency. The details can be deferred to a separate discussion.So I will now commit the editorial sin of repeating myself as a way of closing:Unseen costs. Hidden consequences. Unmentioned side-effects. When told that program A will benefit Group B, always, always, always ask: What about Groups C, D, and E? How will it affect them? And might there even be conveniently-omitted negative effects on Group B, in addition to the positive effects mentioned?When evaluating candidates, issues, and proposals, I hope you will never lose sight of this.And as usual, I want to hear from you on this. What do you have to say? Had you ever heard of Hazlitt's formulation? And what do you think of it? Were you familiar with tautologies, or with "identities" in mathematics? Or more generally: What else does this discussion bring to mind for you?I'm waiting...
