It looks as if someone at Mayor Michael “the friendly fascist” Bloomberg’s eponymous report needs some education in basic economic principles. Bloomberg Views’ Matthew Klein took it upon himself to comment upon a New York Post story about several burglaries in a high-end New York building. Klein suggests that there’s no reason to be upset because — hey! — the targets are wealthy:
When the thief fences $10,000 or $100,000 in jewelry from an heir who barely knows what he owns, the thief will feel much richer and spend most of that money. Maybe he will buy a new car, or go on a bender at strip clubs, or rent a villa in a beleaguered European country. The heir might be somewhat upset, but it’s hard to believe that he will suddenly cut back on his spending because he needs to recoup a relatively small loss. In fact, the heir might end up spending more money as he tries to make his apartment safer from future robberies.
You can understand a lot about America’s dire economic straits if you realize that this kind of idiocy shows up in one of the country’s premier financial publications. What Klein says is a variation of the “broken window fallacy,” which Frédéric Bastiat’s wrote about in 1850, albeit with a soupcon of Marxism thrown in for good measure:
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
I understand that Klein would say that he’s not describing the “broken window” fallacy because there’s no preliminary destruction involved here. There’s just the transfer of wealth from the undeserving rich to the somewhat deserving, albeit criminal, poor, with a substantial decrease in value along the way. But what Klein does is to assume that the rich contribute nothing to the economy, while the poor — even the poor burglars – do.
Klein’s error lies in his belief that only feelings matter: the rich don’t feel the pain of deprivation, while the poor do. That’s true, but it has nothing to do with economics. Lost in that emotionalism is Klein’s fallacious economic point: redistribution (from rich to poor at the point of a gun) will spur the economy. It’s more likely that the diminution in value of the goods as they travel (forcibly) from rich to poor will hamper the economy. The rich man who spends $1 million on a diamond is certainly conspicuous in his consumption, but he’s undoubtedly sending more money into the economy than the poor man who reduces that diamond to $1,000 in cash, much of which we can assume will be spent on drugs and prostitutes. (And even there, assuming the target is decadent, the poor man pours less in the economy buying pot and a $50 a night girl, than would the target who spends on designer drugs and high-end call girls.)
The above ruminations, of course, involve private wealth. Government expenditures (such as Obama’s lavish vacations, all of which require millions in travel and security expenses that the taxpayers bear) simply rob Peter the taxpayer, while paying only a small cut back to Paul the taxpayer.
Hat tip: Best of the Web