On Meet the Press July 25, moderator Tim Russert asked Treasury Secretary Lloyd Bentsen whether the floods in the Midwest would drag the nation's economy downward. No, Bentsen said confidently, the floods might stimulate the economy. "A lot of concrete will be poured," he said. "You have to look at all the jobs that will be created to repair the damage."
Bentsen probably thought his brief seminar in political economy would reassure devastated Midwesterners and skittish investors; his economic ignorance should have scared the hell out of them instead. A book first published in 1946, the year of Bill Clinton's birth, could have straightened the secretary out.
"Though some [opinion leaders] would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction." So wrote Henry Hazlitt in his classic Economics in One Lesson. The 98-year-old Hazlitt died two weeks before Bentsen's television appearance. As statists reassert themselves in Washington, Hazlitt's clear writing and sound thinking on economic policy will be sorely missed.
"The art of economics," Hazlitt wrote, "consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Every government program, even laudable ones like flood relief, exacts a price. When the government decides to "create jobs," the money spent to pour concrete, reinforce levees, and rebuild homes will be diverted from other purposes that, given the option, individuals might have valued more.
Slick-talking politicians try to disguise these opportunity costs every time they argue that some new spending program can "grow the economy" at no cost. Hazlitt pointed out that every dollar the government spends must either be taken from someone's pocket now (through taxes) or later (through deficits, which must eventually be taxed or inflated away).
A New York Times obituary of Hazlitt noted that more than 600,000 copies of Economics in One Lesson have been sold over the years. The book continues to be both timeless and prescient—indeed, prescient enough that you might consider it a book-length repudiation of Clintonomics. Name any Clinton proposal: infrastructure investment, defense conversion, supporting critical technologies, raising marginal tax rates. Hazlitt debunked it.
Unlike the president, for instance, Hazlitt distinguished between legitimate public investments and political pork. When a bridge "is built to meet an insistent public demand," he wrote, and "is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money if it had not been taxed away from them, there can be no objection. But a bridge built primarily 'to provide employment' is a different kind of bridge….Instead of asking themselves where bridges must be built, the government spenders begin to ask themselves where bridges can be built." Spending money becomes an end in itself.
The floods underscore a point Hazlitt often repeated: "The wanton destruction of anything of real value is always a net loss, a misfortune, or a disaster, and…can never be, on net balance, a boon or a blessing." Unfortunately, Lloyd Bentsen and his colleagues in the Clinton administration continue to see blessings in their wanton acts of destruction.
This article originally appeared in print under the headline "Lesson Not Learned".