I was thinking about this today, probably not enough, but I really just have to ask.
Where is the wealth destruction?
When someone buys a depreciating product like an iPod, eventually that wealth will be destroyed. Well how does government destroy wealth?
What does it take to run our government? Wages (paid to gov't employees) and buildings don't destroy wealth directly. There's office supplies, desks, chairs, computers, etc--right, those are all depreciating and are being destroyed over time, but how much could that possibly add up to??
Then there's the military (20% of the budget): Tanks, planes, and guns depreciate over time. Let alone the things that are destroyed physically like munitions and fuel.
If you guys want to just brainstorm a few things government uses money and then destroys, I really think it'd be interesting. I will then steal your ideas and blog about it.
I'm only interested in wealth destruction here, not opportunity cost by misallocating resources (like what would that DMV worker be doing if he was replaced with an ATM and then fired--not interested in that). That's really self-explanatory. I just want a list of actual things the government pays for that is immediately made worthless.
Inflation is wealth destruction.
Forgive me for my ignorance, but how is inflation wealth destruction?
There's a total amount of wealth that currency can represent. Inflation doesn't eliminate that wealth, it simply reallocates it to government.
When the government prints money, more wealth is given to government while everyone who holds raw cash loses wealth. Apart from wasting paper, is there a loss I'm not seeing?
Daniel Roe:When someone buys a depreciating product like an iPod, eventually that wealth will be destroyed. Well how does government destroy wealth?
Bailing out failed businesses
When a government prints money it depreciates savings-which is basically the peoples entitlement to wealth, and henceforth they will have less money that they can buy wealth with.
Daniel Roe:Forgive me for my ignorance, but how is inflation wealth destruction?
It's the reallocation of wealth from the people who are best capable of utilizing it to the people who are least capable of utilizing it.
Welfare is wealth destruction. Warfare is wealth destruction. Subsidies are wealth destruction. These are all destructive activities. Inflation is the mechanism by which wealth is fed into the fire.
Luis Buenaventura: When a government prints money it depreciates savings-which is basically the peoples entitlement to wealth, and henceforth they will have less money that they can buy wealth with.
Right, but the wealth isn't "destroyed"
I'm really talking about actual destruction of wealth, like extreme specifics like building roads to nowhere and lavish parties for politicians.
Really the whole point of this is that normal people don't understand the concept of "Opportunity Cost", but wealth destruction is a fairly easy concept to understand.
In reality, the opportunity cost of government reallocation is probably much greater than the actual destroyed wealth, but, not to use a Bushism, Wealth destruction may be the "smoking gun" simply because people can understand it.
Would eminent domain count?
Daniel Roe:Wages (paid to gov't employees) and buildings don't destroy wealth directly.
They certainly do. Those resources are now unavailable for productive activities.
ipods aren't what is considered when talking about destroyed wealth, what is meant are factors of production: land, labor, capital.
Peace
Daniel Roe:In reality, the opportunity cost of government reallocation is probably much greater than the actual destroyed wealth, but, not to use a Bushism, Wealth destruction may be the "smoking gun" simply because people can understand it.
"Opportunity cost" in this case is a misnomer, because every other private venture would have been more profitable than government spending. There is no profit from government spending. Every dollar the government spends must come from tax, so at best there is just no net gain or net loss. That is, for every job created by the government, there is a job lost in the private sector. But, as Henry Hazlitt aptly points out in Economics in One Lesson, there is a net loss. This is because the areas which the government is subsidizing are not capable of maintaining themselves, so the government is reallocating wealth from the people which would have invested or consumed in areas which there is demand (brought about by their consumption) and into healthy industry, while the government inherently invests in unhealthy industry (or else those industries would not need government subsidies).
So, while that money would have been invested into economic growth, the government is simply wasting them into dying business. And so, there is a net loss, because what would have otherwise been a healthy business is having resources which would have otherwise gone to them being reallocated to wealth destroying ventures.
Let's break it down.
Production is the creation of wealth.
Consumption is the destruction of wealth.
Are you looking for examples only of direct consumption by the government or would you also accept examples where the government "stimulates", encourages or otherwise increases consumption by individuals and firms? e.g., by redistributing wealth from those who produce more than they consume to those who consume a relatively greater amount. If this redistribution is done by hiring workers to do a pointless job (along the lines of digging holes and filling them back in), then it may be an example of both cases at once.
Joel:Consumption is the destruction of wealth.
No, it's not.
Person A produces a shoe and sells it to Person B, so that Person A can then buy consumables. And so Person A consumes three bananas produced by Person C. That is not the destruction of wealth. Person C has just gained money that he or she can consume, save or invest. In either case, there has no destruction of wealth.
In regards to the government, government is only consuming in areas in which are unhealthy and so the government is basically making a bad investment. That is the destruction of wealth.
Joel:Let's break it down. Production is the creation of wealth.
You understand exactly what I'm talking about: Government consumption.
It's a much more boring topic than the potential wealth lost by simply tying up labor, land, and buildings in pointless tasks (which is, IIRC, the majority of what government money goes to, at present). However, I believe everyone here is well-acquainted with the opportunity cost of government: "If we got to keep our money, we'd do better stuff with it!"
I'm pretty well versed in the basics of government waste, I was just particularly interested in this area.
It's kind of a hypothetical: "What if Ron Paul were cloned 600 times and occupied all the seats in congress and the whitehouse?" situation:
What resources would be freed up right now is a beautiful thought, but it's just so damn much, it's probably easier to think of what have we lost as a result of being "overly governed" for so long. I think the easiest way to quantify that is the sheer raw materials government consumes. How much garbage sitting in deserted land-fills was a result of the 300 pound gorilla ? How much pollution in our air was from government vehicles? How much natural resources were literally combusted? Most importantly: how much productive human life was toiled away at meaningless, soulless government positions? None of this stuff we will ever get back, even if the libertarians actually win. It's a huge wound that's going to scar pretty bad.
Jonathan M. F. Catalán:Person A produces a shoe and sells it to Person B
The wealth was the money, and the shoe.
The shoe lost value as soon as person B walked out of the store with it. Over time that shoe will have no value.
That's consumption, and it's destruction of wealth. It started out that Persons A and B had an equal amount of wealth. After the shoe was destroyed, only person A was left with wealth.
Jonathan M. F. Catalán: Joel:Consumption is the destruction of wealth. No, it's not.
I'm willing to side with Joel here.
Although consumption is the ultimate aim of all production, once you have consumed something you can't consume it again, nor can you save and invest it. In short - consumption is weath destruction. Nobody on earth has ever enriched themselves by consuming more.
Irish Liberty Forum
Jonathan M. F. Catalán: Joel:Consumption is the destruction of wealth. No, it's not. Person A produces a shoe and sells it to Person B, so that Person A can then buy consumables. And so Person A consumes three bananas produced by Person C. That is not the destruction of wealth. Person C has just gained money that he or she can consume, save or invest. In either case, there has no destruction of wealth.
You are dangerously close to something like the broken window fallacy (or even Keynesianism).
Let's take your example step by step:
Person A produces a shoe. Wealth was created.
Person A sells it to B in exchange for money. This is just an exchange of goods.
Person C produces bananas. Wealth was created.
Person A exchanges money to C for 3 bananas. This is just an exchange of goods.
Now person A has 3 bananas, person B has a shoe, and person C has the money. No consumption has taken place.
Then person A consumes his 3 bananas. Wealth was destroyed. Person A gains the satisfaction of consuming the bananas and then A is 3 bananas poorer. Person B will wear his new shoes around, wearing them out over time (consuming them). In this process, wealth is destroyed. Once the shoes are worthless, then B is that much poorer than when he had new shoes.
Consumption is the destruction of wealth (utility), not merely the purchase of consumption goods (which, of course is something that a shipping company or retailer, for example, does.).
Joel:You are dangerously close to something like the broken window fallacy (or even Keynesianism).
No I'm not. In the broken window fallacy the crook smashes the window. The argument is that the new window would create more wealth, but it doesn't, because the original window is shattered. So, still only have one good for the price of two. My example doesn't come near this fallacy.
Let's take your example step by step: Person A produces a shoe. Wealth was created. Person A sells it to B in exchange for money. This is just an exchange of goods. Person C produces bananas. Wealth was created. Person A exchanges money to C for 3 bananas. This is just an exchange of goods. Now person A has 3 bananas, person B has a shoe, and person C has the money. No consumption has taken place. Then person A consumes his 3 bananas. Wealth was destroyed. Person A gains the satisfaction of consuming the bananas and then A is 3 bananas poorer.
Then person A consumes his 3 bananas. Wealth was destroyed. Person A gains the satisfaction of consuming the bananas and then A is 3 bananas poorer.
But, the bananas have not been destroyed. They have turned into energy to allow Person A to continue producing. And so the banana should be represented as labor.
The difference between government spending and private spending on non-durable goods is that government is subsidizing industries that are not producing. That is where the destruction of wealth comes in. So, let's say that Person D (the person that the government is subsidizing) is fed three bananas in order to allow him to work, because his products have not sold and he needs money. But, his products aren't selling, and so to subsidize him to continue producing the same product that isn't selling is merely destroying wealth. He is not producing anything out of his consumption.
This is where I'm getting at. There's a key difference between simply destroying and consuming in order to continue production. In the broken window example, the first window was shattered. It's "consumption" did not translate into it helping produce anything. On the other hand, if that same window was removed and used to create a bigger product then it was not wealth destruction.
This is the idea behind the Robinson Crusoe example provided by de Soto. In the example Robinson Crusoe saves berries so that he can produce a stick to "produce" (or gather) more berries. These are capital-goods. Crusoe is using is consuming to create greater wealth.
Jonathan M. F. Catalán: But, the bananas have not been destroyed. They have turned into energy to allow Person A to continue producing. And so the banana should be represented as labor.
This has just turned from an economics question into a thermodynamics one. Somebody needs to make the argument that Keyensianism accelerates energy's progression to a higher state of entropy.
And what if instead of using my banana-wealth energy to produce, I use it to type messages on Austrian Economics forums. Is that not wealth destruction?
wealth is standard of living. when the government spends money on things that are actively inimical to your standard of living that is wealth destruction. the wealth was created by someone and turned right back around and used to destroy productive capacity.
Maybe a better example would be that of a car. I buy a car, and theoretically, after I run it into the ground I have destroyed wealth. But, in the process I have created wealth by using my car to get to work, to produce, et cetera. It's an investment. In that sense, consumption is necessary to produce wealth.
This isn't Keynesianism. I am not proposing that government can stimulate aggregate demand, nor do I think that stimulating aggregate demand would "create wealth".
The example of the berries was one proposed by an Austrian economist himself. In his example he did not mention a destruction of wealth. Sure, the berries cease to exist. But their consumption allowed the production of the tool that will get Robinson Crusoe even more wealth.
A.I'm really talking about actual destruction of wealth, like extreme specifics like building roads to nowhere and lavish parties for politicians.B.What does it take to run our government? Wages (paid to gov't employees) and buildings don't destroy wealth directly. There's office supplies, desks, chairs, computers, etc--right, those are all depreciating and are being destroyed over time, but how much could that possibly add up to??How is A any different from B?
Daniel Roe:Where is the wealth destruction?
There's wealth destruction in the opportunity cost of using privately owned tax dollars.
Roy Munson: A.I'm really talking about actual destruction of wealth, like extreme specifics like building roads to nowhere and lavish parties for politicians.B.What does it take to run our government? Wages (paid to gov't employees) and buildings don't destroy wealth directly. There's office supplies, desks, chairs, computers, etc--right, those are all depreciating and are being destroyed over time, but how much could that possibly add up to??How is A any different from B?
It's not, I was giving examples of what I was talking about.
Jonathan M. F. Catalán: But, the bananas have not been destroyed. They have turned into energy to allow Person A to continue producing. And so the banana should be represented as labor. This is where I'm getting at. There's a key difference between simply destroying and consuming in order to continue production.
This is where I'm getting at. There's a key difference between simply destroying and consuming in order to continue production.
If the banana was used merely to facilitate production, then it was a capital good (factor of production), not a consumption good. If I eat an expensive meal that is more than I need for mere sustenance to continue producing, then it's consumption.
Or you might have in mind a terminology similar to Jean Baptiste Say http://mises.org/story/2981
"Consumption is the opposite of production: it is a destruction of values produced."
But then, "We do not wantonly destroy things of value: what end is proposed in doing so? Either to procure an enjoyment or else to reproduce another value." The latter he calls "reproductive consumption", which, "consists in the industrious destruction of one value, so as to produce another in place of that which is destroyed, and which exceeds it in value sufficiently to pay for the industry employed in the operation."
Diverting the production of services and goods from where consumers would want it to be, away from their effective demand.
Freedom of markets is positively correlated with the degree of evolution in any society...
totally excellent comments thus far, I'd like to contribute by mentioning that as the benefits to investing in entrepeneural endeavours is eroded, by taxation and by regulation, there is a disincentivisation of entrepeneurial activity; so wealth that otherwise would have been created is never even brought into existance
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
There's also room here for the Hoppean time-preference argument; through taxation and inflation, the government can promote high time preference, thereby destroying the process of civilisation (which is built on savings/ low time-preference).
Effectively it's stealing from future humans.
Think of it differently. The shoe isn't a consumable. It is a factor of production. It is capital formation. Without the shoes, the shoe's owner would find it hard to come and go. He would find it difficult to produce, therefore, and add to the communitie's wealth.