The Most Persistent Economic Fallacy of All Time!

From a lecture given by Dr. Milton Friedman in Erie, Pennsylvania (1978).

This is essentially a restatement of the "parable of the broken window." This fallacy has been known since at least 1850 when French theorist Frédéric Bastiat published a pamphlet entitled, "That Which is Seen and That Which is Not Seen." You can read it here:
http://bastiat.org/en/twisatwins.html

It was popularized in 1946 by economist Henry Hazlitt in an important book called, "Economics in One Lesson." According to economist Walter Block, the book was instrumental in converting him from communism to capitalism. (Incidentally, Block's book "Defending the Undefendable" was instrumental in converting John Stossel to libertarianism.) It can be downloaded for free from the Foundation for Economic Education here:
http://www.fee.org/pdf/books/Economics_in_one_lesson.pdf

Download "Defending the Undefendable" by Walter Block here:
http://mises.org/books/defending.pdf

John Stossel has a nice little video of this fallacy under the guise of so-called "green jobs." Watch it here:
http://www.youtube.com/watch?v=HNjAielBBG0

Stossel also has a great article about this fallacy under yet another guise known as "Cash for Clunkers." Read it here:
http://www.realclearpolitics.com/articles/2009/09/02/clunker_legislation_9813...

From The Boston Globe (1 Sep. 10):
"...the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car's engine, and send the car to be crushed or shredded.

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it "successful beyond anybody's imagination.'' Which it was, if you define success as getting people to take "free'' money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly."
http://tiny.cc/dtocb

Also, a report from Edmunds shows that it cost American taxpayers $24,000 to give away $4,500!
http://features.csmonitor.com/economyrebuild/2009/10/28/report-cash-for-clunk...

From CNN Money / Fortune Magazine (17 Nov. 09):
"Cash for Clunkers. It was a well-intentioned plan that was supposed to increase consumer confidence, spur fuel efficiency, jump-start the auto industry, and help create American jobs.

Instead it disproportionately benefited foreign car companies, which create fewer North American jobs per auto dollar than the Detroit Three do. And sales came mostly from inventory, doing little to increase production and jobs.

What's more, by junking clunkers, the program removed many low-end vehicles from the used-car market, running up prices for the lower-income people who'd normally buy them. So we hurt the people most in need of help, while throwing taxpayer dollars down the drain. "
http://money.cnn.com/2009/11/16/news/economy/bad_business.fortune/index.htm?c...

The last paragraph above is the most important. A well-intentioned plan that hurt the very people it was intended to help? That's the only thing the government does consistently well! To find out one of the reasons why, watch this video:
http://www.youtube.com/watch?v=uyW8US8qeDM

From WaPo (22 Feb. 10):
"A law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive."
http://mjperry.blogspot.com/2010/02/distortionary-effects-of-regulations.html...

This video is an excerpt from Milton Friedman Speaks: Lecture 13, "Who Protects the Worker?"
http://www.freetochoose.net/store/product_info.php?products_id=42

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[FlyingPinkUnicorn]

What a stupid question. If that were true, the optimum economy would be if all of us paid 100% of our income in taxes. Good grief, economic ignorance - which is even worse 30 years later - is going to kill the USA.

[gwangjuboy1]

Local governments can be even more zealous than centralised governments when it comes to tax and spend. Council tax (municipal tax) in the UK has risen by 100% in a decade.

[FletchforFreedom]

@HavidDagstrom Since Friedman has always expressly endorsed taxation particularly for things like road building, it is clear that yoy are ranting against him without the slightest clue what he actually proposes.

Brilliant!

[FletchforFreedom]

@DoneWithDogma The problem is that apparently you haven't the slightest clue what capitalism is and are just railing at it becuase you think it's "bad". That capitalism functions in a world of people motivated by self-interest is because ... all human beings are motivated by self-interest. This doesn't prevent the creation of non-profit organizations which are perfectly fine under capitalism. And private health facilities and libraries have provided better service.

[HavidDagstrom]

Anybody who believes any of this is a utopian, selfish bastard. If you don't like the street you drive on and don't use anything run publicly, don't pay taxes. However if you do anything or buy anything that requires any single kind of infastructure, you're being a hypocrite by not wanting to pay taxes.

[DoneWithDogma]

@FletchforFreedom you believe that no organization should exist unless it turns a profit, including health facilities,libraries, prisons, police organizations, and this is a philosophy we just aren't going to agree on.

[AroundSun]

@DoneWithDogma Capitalism and free markets aren't pro business like everyone assumes. It is pro consumer, THATS why we like it. If we had to rely on the good will of people to provide for our basic necessities and various wants, we would be in an even bigger world of shit. Bad business owners hate capitalism and free markets because they have to compete.

[FletchforFreedom]

@DoneWithDogma And your history of the three strikes law bears no resemblace to reality. New York has had one for more than a century. Texas has had one sicne 20 years before the first private prison. It was the voters via referendum who added it in Washington state in 1993. And nine states with three strikes laws have no private prisons while still others had none when the three strikes law was passed. Your position is directly at odds with the avaialble facts.

[FletchforFreedom]

@DoneWithDogma I can't speak to the European prisons, but your assertions about the US prison system, again, do not hold up. The three-strikes law has had a minimal impact on incarceration rates compared to the War on Drugs and, again, the rise in imprisonment precedes the implementation of any privatization at all.

While it's true that "New Deal" era remedies aren't fit for today's economic system, that should have been obvious since they we so disastrous then.

[FletchforFreedom]

@DoneWithDogma If you are going to "explain", again, it might help to get yur facts straight. Regulations serve those in government, either to appease certain constituencies or to play favorites for their own benefit. Neither deregulation nor lack of enforcement is a problem - it is the regulations themselves invariably doing more harm than good - Fed interventions, liability caps, the FDA and on and on.