Kellner compares this kind of stimulus to President Roosevelt's Works Progress Administration. "The fact that more money was in circulation resulted in more income, spending, jobs and eventually more purchases of capital goods by business," he adds. "While it lasted, it helped us climb out of the depths of the Great Depression."
Can this expand the economy? |
Henry Hazlitt, in his Economics in One Lesson, has a more accurate take on such assertions by applying Bastiat's example of the broken window fallacy to the supposed blessings of destruction. "No man burns down his own house on the theory that the need to rebuild it will stimulate his energies" (p. 27). "Plants and equipment cannot be replaced by an individual or a socialist government) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. But war [or a hurricane] destroys accumulated capital" (p. 30).
Even if the destruction wrought by Hurricane Irene causes some people to increase spending on construction and, therefore, not hold as much cash as they otherwise would (Keynes' unpardonable sin of hoarding), they are still left worse off, because they would rather hold a certain cash balance that they now cannot because they must make house repairs.
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