Rahm Emanuel famously put into words what every politician since the dawn of man has always known but never dared utter. Never mind that some of the greatest crisis to befall man have been engineered just so politicians could take advantage of the social mood engendered by the crisis. One of the most famous examples of deliberately allowing a crisis to develop that occurred in the recent past is Pearl Harbor of course. Today, after secret files pertaining to WWII have been declassified (over 60 years after the event rather than the standard 30) we know the US administration was aware of Japan’s plans prior to the attack. Nonetheless, mired in a severe financial crisis that bears striking resemblance to the current crisis, the USA as the emerging hegemon needed the crisis in order to galvanize the population for war and at once take care of unemployment, excess debt and excess industrial capacity at global level. The net result is that after horrific bloodshed and overwhelming devastation of the land, not only did the USA emerge as hegemon but suddenly they possessed the only operational industrial capacity that now had to supply the rest of the world with capital and manufactured goods for the reconstruction.
This is the reason politicians love tragedy and crisis because it allows a politician to get spending approved before anyone can even contemplate to ask relevant questions. Questions like: “How did we get into this mess in the first place?”. This is the reason why politicians have no compunction in pushing deficit spending a outrance; those that understand the ramification of constant deficit spending do it because they know that when the monetary system hits the wall, they can always wiggle out of their responsibility by precipitating a crisis. Those that don’t understand the ramifications of constant deficit spending do it because they don’t understand it and think that tax revenue is inexhaustible. Without mentioning that when emergency spending is approved, politicians also get the chance to stuff the new spending programs full of pork for allies, cronies not to mention their own pockets.
The need for a politician to exploit a crisis is rooted in the Broken Window Hypothesis that holds sway with the shallowest and/or the more self serving politicians and that has been debunked as far back as the 1850s. Simple politicians like George W Bush for example were enthralled by fallacious theories that a broken window helps to spur economic activity. Similarly, every politician’s propensity to allow crisis to fester and develop is rooted in the same fallacious thinking. Let something devastating happen so that we can get huge spending programs approved thus stimulating economic activity as well as their own pockets.
Frederic Bastiat (1801 – 1850)
. The Broken Window
Have you ever been witness to the fury of that solid citizen, James Goodfellow,*1 when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?”
Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.
Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs’ worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.
But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.
It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
Let us next consider industry in general. The window having been broken, the glass industry gets six francs’ worth of encouragement; that is what is seen.
If the window had not been broken, the shoe industry (or some other) would have received six francs’ worth of encouragement; that is what is not seen.
And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken.
Now let us consider James Goodfellow.
On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.
On the second, that in which the accident did not happen, he would have spent six francs for new shoes and would have had the enjoyment of a pair of shoes as well as of a window.
Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window.
From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: “Destruction is not profitable.”
What will the Moniteur industriel*2 say to this, or the disciples of the estimable M. de Saint-Chamans,*3 who has calculated with such precision what industry would gain from the burning of Paris, because of the houses that would have to be rebuilt?
I am sorry to upset his ingenious calculations, especially since their spirit has passed into our legislation. But I beg him to begin them again, entering what is not seen in the ledger beside what is seen.
The reader must apply himself to observe that there are not only two people, but three, in the little drama that I have presented. The one, James Goodfellow, represents the consumer, reduced by destruction to one enjoyment instead of two. The other, under the figure of the glazier, shows us the producer whose industry the accident encourages. The third is the shoemaker (or any other manufacturer) whose industry is correspondingly discouraged by the same cause. It is this third person who is always in the shadow, and who, personifying what is not seen, is an essential element of the problem. It is he who makes us understand how absurd it is to see a profit in destruction. It is he who will soon teach us that it is equally absurd to see a profit in trade restriction, which is, after all, nothing more nor less than partial destruction. So, if you get to the bottom of all the arguments advanced in favor of restrictionist measures, you will find only a paraphrase of that common cliché: “What would become of the glaziers if no one ever broke any windows?”