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by Eric
Englund
We
have all heard it before. There is nothing like a hurricane,
earthquake, tsunami, or war to help spur economic growth.
Politicians, reporters, Wall Street analysts, and economists
(save for the Austrians) marvel at how natural and manmade
disasters bring people together to rebuild homes, office buildings,
factories, and infrastructure. Demand is kick-started for
lumber, concrete, masonry block, electrical wiring, windows,
asphalt, and the list goes on. Contractors, subcontractors,
supply houses, and other businesses increase demand for labor;
hence employment is stimulated as well. Heck, look how Japan
and Germany emerged as economic powerhouses after World War
II. By gosh, war, natural disasters, and general destruction
do have a silver lining – it’s called economic stimulation.
Of course, this is all bunk and amounts to nothing more than
the broken-window
fallacy. As Henry Hazlitt conveys in his masterful book
Economics
in One Lesson: "…the broken-window fallacy, under
a hundred disguises, is the most persistent in the history
of economics." And persist it does.
In
Zimbabwe, this fallacy has taken on a novel disguise. Zimbabwe’s
president, Robert Mugabe, has ordered the destruction
of thousands of homes for the sake of cracking down on
crime and spurring Zimbabwe’s economic regeneration. To economists,
politicians, and Wall-Street types, President Mugabe must
look like a genius – bring on the Nobel Prize for economics.
In his prize lecture, Robert Mugabe can simply restate what
he has already told his people: "We are constructing
brand new houses, mending those which require to be mended,
where it is necessary to destroy some. But the thrust is a
reconstruction one, a positive thrust to rebuild things…"
Additionally, there "…will be joy on the part of those
who did not have homes, joy on the part of those who had homes
which could not accommodate fully their families. Let’s bring
about that joy and we shall erase this image of a Zimbabwe
that is in ruins." Indeed, let us all embrace the joy
of government-induced domestic destruction so that all may
prosper. At this point, Nobel committee members leap to their
feet and give Nobel laureate Robert Mugabe a standing ovation
– as Paul Krugman watches with envy. The sheer genius
of turning government forces against its own citizens, to
destroy thousands of homes and leaving over 300,000 homeless
surely will create the aggregate demand necessary – for
housing, furniture, appliances, etc. – to put Zimbabwe
back on the road to prosperity. Mugabenomics is legitimized
by the Swedes.
So
what if America’s housing bubble bursts, due to rising interest
rates, and the economy starts slipping into an inflationary
depression? Americans with interest-only mortgages, adjustable
rate mortgages, and reverse amortization mortgages will be
clamoring for relief. Freddie Mac and Fannie Mae will teeter
on the precipice of insolvency. The banking system will find
itself in a mortgage-default crisis which will make the S&L
debacle look tame by comparison. Alan Greenspan will be tempted
to flood the banking system with liquidity (in order to bring
down short-term interest rates) but this may add fuel to the
fire (i.e. driving up inflation) thus causing mortgage rates
to rise even more rapidly. All the while, construction companies,
supply houses, realtors, mortgage brokers, bankers, real estate
developers, equipment dealers, etc. are all laying off employees…as
it is a matter of business survival. Since letting the depression
run its course and going back to the gold standard are not
options any modern central banker or president will ever consider,
perhaps the answer is Mugabenomics – Paul Krugman is
writing scathing editorials imploring President Bush and Alan
Greenspan to let the "productive destruction" begin
immediately.
After
consulting with Nobel laureate Robert Mugabe, President Bush
declares a "War on Economic Depression." While addressing
the nation, with Alan Greenspan and Donald Rumsfeld at his
side, President Bush carefully lays out his plan to revitalize
America’s economy. He has ordered the evacuation of San Diego,
Los Angeles, San Francisco, Seattle, Tampa, Miami, New York,
and Boston – much like a hurricane evacuation. Each city,
consequently, will be carpet bombed until it is as flat as
a pancake. Secretary of Defense Donald Rumsfeld chimes in
and describes how every B-52, B-1, and B-2 bomber is at the
President’s disposal. In turn, Alan Greenspan describes how
the "creative destruction" of the free market will
be supplanted by the "productive destruction" of
government. President Bush takes another turn at the microphone
and declares that the newly created Department of Homeland
Reconstruction will oversee every aspect of the rebuilding
effort – the head of this new department will be a cabinet-level
appointee. George W. Bush closes his stirring speech with
overpowering certainty that "…just as World War II pulled
America out of the Great Depression, so will my newly declared
War on Economic Depression!" Robert Mugabe, reportedly,
was moved to tears by this speech.
The
very next day, the New York Times, the Wall Street
Journal, and the Washington Post’s editorial boards
unanimously declare unwavering support for the "War on
Economic Depression." The editorials wax eloquent as
to how hotels, restaurants, defense contractors, steel fabricators,
timber companies, building contractors, equipment manufacturers,
realtors, developers, and so many other industries are going
to benefit from the evacuation, the carpet bombing, and the
reconstruction phases of this bold central plan. In fact,
writing for the New York Times, Paul Krugman declares
"…this program doesn’t go far enough in that we must
not forget the Keynesian prescription of creating additional
employment via building pyramids." Without hesitation,
pyramid building is added to Bush’s plan – in order to
enhance Dr. Krugman’s stature with the Nobel committee –
after all, it was Krugman who pushed for governmental productive
destruction all along.
As
the carpet-bombing campaign begins, which was almost unanimously
approved by Congress (only Ron Paul voted "no"),
President Bush reasserts his confidence in his plan. Furthermore,
he states: "Once this depression is over, we will see
to it that President Mugabe’s likeness is carved into Mt.
Rushmore. We no longer must wait for hurricanes, earthquakes,
or tsunamis to bring economic well-being to our country; as
Mother Nature is too unpredictable. Zimbabwe’s president is
an international hero; he showed us the path to prosperity
and we are eternally indebted to him." Secretly, $1 billion
is wired to President Mugabe’s Swiss bank account.
Let
the productive destruction begin! Broken-window fallacy be
damned.
July
19, 2005
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