Sunday, May 02, 2004
Often the results of economic fallacies are not so obvious except in the wallet of the individual. For example in Iceland the price of Milk is price controlled and this is something that one knows and is not obvious when one goes to an Icelandic supermarket. As times goes by the rules and regulations are that usually start as a beautiful promise by politicians will reveal themselves and we can watch the results.
Frédéric Bastiat wrote the essayWhat Is Seen and What Is Not Seen. There he writes about the bad ideas that are put into action because their long term effects are not easily visible. Everyone can see a beautiful bridge or a symphonic orchestra but who can see the more economical bridge that was not built or the shrinking wallet of taxpayers.
However, the disastrous effects of bad policy, human stupidity and ideological madness are often visible in a most dramatic way in the long run:
Justified state project This monster of a house was built for a radio station in Iceland. A radio station, someone might as. Are you crazy, nobody needs a palace for one silly radio station...this is by no means a economically viable endeavour. The catch is that the question if this was a smart idea from an economical standpoint was not raised and was indeed an non-issue. The house was was built by the state for a state owned radio station.
Lebensraum The battle of Kursk. In 1943 the greatest tank battle ever took place on the vast plains of Russia. In the battle that lasted 5 days 435,000 German soldiers and 2,700 tanks fought against 1,550,000 Russians with 4,800 armoured vehicles.
Adolf Hitler was a sucker for silly ideologies and quack economic fallacies. He decided not to believe that trade and economic freedom was the best way to bread feed the people although the evidence was all around him. His adopted ideas of lebensraum was one of the chief motivators of the war and the invasion in the Soviet was to ensure enough food (note, not prosperity) for the Volk.
Freedom in trade and economics is a peaceful way of ensuring not only the modest goals of merely feeding the people but it is a source of immense wealth for those nations who decide to go that route. Frederic Bastiat said in Economic Harmonies: "By virtue of exchange, one man's prosperity is beneficial to all others." Megalomaniacs simply do not comprehend this.
It is certainly true that the productivity of the soil can be increased within certain limits; but only within defined limits and not indefinitely. By increasing the productive powers of the soil it will be possible to balance the effect of a surplus birth-rate in Germany for a certain period of time, without running any danger of hunger. But we have to face the fact that the general standard of living is rising more quickly than even the birth rate. The requirements of food and clothing are becoming greater from year to year and are out of proportion to those of our ancestors of, let us say, a hundred years ago. It would, therefore, be a mistaken view that every increase in the productive powers of the soil will supply the requisite conditions for an increase in the population. No. That is true up to a certain point only, for at least a portion of the increased produce of the soil will be consumed by the margin of increased demands caused by the steady rise in the standard of living.Adolf Hitler, Mein Kamf
A tale of three German cars. Mercedes Benz SKL and Trabant and the WW Beatle. Three cars produced by the same people. What is the difference?
People could actually buy the Mercedes cars in W-Germany and it was so common that it was hardly a status symbol to drive one. For the Trabant people would wait for years or decades to get their car from the state. Not only was the car inferior to what the same people could do 50 years earlier but was rationed as well. The third car was supposed to be produced for das Volk by the Nazi state but although many people did pay for it in advance, no Volkswagen was actually produced for the people in Hitler’s Germany.
Inflation. How did the German government respond to rising prices in the early twenties? They made printing money a large industry. Each new batch of money did only increase the prices further and this did in turn lead to more money to be printed. In less than two years the average prices rose by a factor of 20 billion. Don't believe me. What about the one mark note from 1920 and the 20 billion note from 1923. There is also a 200 billion note but unfortunately some politicians do realize the root of the problem even though they see such a note.
This mad printing spree did of course destroy the German economy where no one really knew the real value of things and an people did spend most of their valuable time chasing goods before the next price hike.
Centralised government. In 2009 the Stone Treasure Village will be below the surface of the Yangtse River when the Three Gorges dam will be finished. A monumental collective effort that was decided on by a selected few.
Centralised government. This gorge will go under as well. The collective that justifies it's existence because the market does not take "externalities" into account decided to build a dam here. The location was not decided due to a fancy NPV calculation or well balanced decision that takes economic and environmental factors into account. Bad economics, but some politicians can make a living in the Icelandic parliament for four more years.
State control of scarce resources. People waiting in queue in post-war Britain in order to get some food. Ques are a sure sign of food rationing but rationing is the the next stage after price controls in the road to serfdom.
Rules and regulations. Why are the old buildings in Amsterdam so narrow? According to Giorgio Inzerilli, the property tax was determined by the with of the facade and of course people responded by building these absurdly narrow houses in order to reduce their tax payments.
Centralised government. In the times of Soviet someone had the brilliant idea to reverse the flow of a river or two in order to produce more cotton. Obviously someone thought this was a good idea at the time.
Prosperity. Seattle protestors. If you see something like this then you know that you are in a prosperous country where people have the right to protest and obviously a lot of free time on their hands.