"There is no profit in destruction***" said no media outlet ever. Louisiana Flood Edition...

***Frederic Bastiat.

Well, it has not happened yet, but wait for it...

Here is a satellite photo (from NYTimes) that shows "Louisiana at Night".  The bright white on the left shows the State as it normally is at night.  The one of the right shows it on August 15, 2016.

Notice the lack of electricity where it used to be plentiful?  Many areas have gone dark.  Devastation.


When damage is done to property, private or public, it has to be repaired or rebuilt. This will necessitate new/current purchases of goods and services.

This adds to Gross Domestic Product (GDP).  It looks like the economy is humming along.

But GDP accounting must include a subtraction to account for what was lost, right?  The added purchases are simply making us whole again, right?

Nope.  GDP includes only "new goods and services" purchased.

Now, businesses will sell less of some goods (demanded before the flood) and more of others (stuff to rebuild) so it could (not likely) come out even.

But you are likely to see a news report that suggests there is a "positive side" to this tragedy---employment and the buying of new stuff.  DON'T BE FOOLED!!

"""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."""" Bastiat.

E-waste, recycling and "good intentions". What happens when you hurt the people you are supposedly trying to help?

When viewpoints based on prior information (faulty or not) have been rendered obsolete why are we slow to change those views?

Is it because we have established a reputation based on those assumptions and to question would be to question our purpose?  I think this is more common than we think.

This opinion piece from Bloomberg suggests this is what it going on in the Electronic Waste (so called "E-Waste") industry and the negative environmental impact of E-waste is way overstated. 

I am not smart enough to know if this big picture story is true. But I am aware enough to know as a byproduct of sweeping policies to address a problem more often than not results in negative un-intended consequences.  Usually they are predictable but are not taken into consideration in the implementation of the policy.

"...This misunderstanding has led to several efforts at erecting partial export bans on U.S. electronics to developing countries, which -- other studies demonstrate -- import them as cheap and sustainable alternatives to new equipment. As a result, perfectly usable electronics are diverted into a recycling stream, where they are turned into raw materials, rather than into markets where they can be reused for years..." (Bloomberg) 

A conflict between "Reuse, Recycle" in triad of "Reduce, Recycle, Reuse" seems to have emerged. 

Interest groups have taken the "Seen" negative consequences of E-waste imposed on the few and put it above the "Unseen" positive effects that it may confer on the many.

Additional information tends to get in the way of our firmly held beliefs, doesn't it??

Nice video showing advancement in Robotics. How many jobs is this GOING to eliminate OR (gasp!) create?

Below is an awesome video (HT: Carpe Diem) illustrating an advancement in robotics and its potential application to everyday life---industrial and personal. What will be the effect on employment when this technology becomes routine in daily life? I see the potential for creating instances of "structural unemployment" in the marketplace---people losing jobs to machines that can perform the same tasks as a worker. It is easy to see the jobs that might be lost and other costs this technology might impose on society. However, what about the "unseen" benefits of this technology on society and even on employment? Extra credit for good answers.

"There is no profit in Destruction"---See how my beach house in North Carolina was affected by the Hurricane...

"There is no profit in destruction"

No, I don't have a beach house in North Carolina.  BUT in my dreams this is what would have happened as a result of hurricane Irene...

Assume in January of this year I built a beach house on the coast of North Carolina at a cost of $200,000.  Gross Domestic Product (GDP) would increase (assuming ALL the construction material came from the US) by $200,000. 

The hurricane comes through and destroys my house.  I receive my insurance settlement and rebuild my house, BUT now the cost of rebuilding the same house costs $210,000 (inflation, scarcity of building materials, increase in insurance, etc). 

GDP increases by $210,000.  So far I have contributed a total of $410,000 to GDP for the year 2011.  This unfortunate event seems to have a silver lining, doesn't it? 

The first week of school you were introduced to the the philosophy of Frederic Bastiat and the important concept of opportunity cost.

Using this new-found knowledge, list/discuss some of the problems or logical fallacies related to Bastiats way of thinking and/or opportunity costs of the above scenario.

Hint: there are LOTS of opportunity costs incurred in this situation, some obvious and not so obvious.  Go crazy and find as many as you can...

The cost of the Ethanol Mandate is not chicken feed....The Federal Government is bailing out chicken producers because the price of chicken feed is increasing---because of the Federal Ethanol Mandate. Does anyone else think this is kind of crazy???

How timely. Today in class I used the ethanol mandate as a way to illustrate Frederic Bastiat's "Seen and the Unseen" and the damaging effects of a policy gone awry, but not gone away.  While the article below is not about ethanol, there is a connection. See if you can find it...

U.S. places $40 million chicken order

""The United States is stepping in to help bail out another American industry -- chicken farmers and meat processors.

The nation's chicken industry is having a difficult year. Chicken producers are struggling with higher costs of running their business at the same time that consumers are buying less meat.

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This has created a glut of chicken products in the market.

The Department of Agriculture, keenly aware of these issues, announced Monday that it will make a special purchase of up to $40 million of chicken products, which the government will then donate to federal food assistance programs such as soup kitchens and its national Feeding America programs.

"At a time when the industry is under great stress due to the high cost of feed ingredients and the general economic slowdown, we appreciate USDA's willingness to step forward," the group said in a statement...."

Keeping in mind the focus of my lecture today I have to ask: WHY is chicken feed increasing in price? Anyone? Anyone? Anyone?

Bastiat's "The Seen and the Unseen" and "The Broken Window Fallacy" explained in a short video. Does it get any better than that?

Please go HERE for the text that accompanies this video. Only read the first part on "The Seen and the Unseen" and "The Broken Window Fallacy".

This is the first assignment I give in AP Economics (Both Macro and Micro). I like to thread the "seen" and "unseen" theme throughout the semeter. I think it underscores the concept of opportunity cost and helps students become better critical thinkers. I also find it is one concept students NEVER seem to forget!

HT: Kids Prefer Cheese

"WWBS"--What Would Bastiat Say" about the tax code and the cost to comply with it...I think I know...

I am not sure if this excerpt below violates Frederic Bastiat's conclusion in "The Broken Window Fallacy", Destruction is not profitable", but it sure is a good example of the "seen and the unseen".  The tax code is so complex that it requires a whole tax preparation industry to help people do their civic duty to pay taxes.  Yes, this creates lots of jobs, but ONLY because the IRS, with Congressional oversight, has aided and abetted it.  The tax preparation industry "rent-seeks" at the expense of the taxpayer.  This industry only exists with the help of government. That is the seen. The unseen is what the incredible amount of money that goes to this industry COULD be doing instead.  The unseen is what we are giving up in order to comply with the tax code.  We have destroyed (ok, maybe that is extreme--how about limited) future opportunities that will never be realized because of present policy.  Something to think about...

""Each year America’s labyrinthine tax code costs taxpayers billions, in dollars, hours and headaches. But it also has one giant beneficiary: America’s tax preparation industry.


The National Taxpayer Advocate’s latest annual report to Congress argues that “the most serious problem facing taxpayers” is not that taxes are too high, or that tax revenues fall so short of government spending, but that the Internal Revenue Code is just too dang “complex.” A convoluted tax code sucks up a huge amount of time and resources from the nation’s taxpayers, the report says.


Among the report’s key findings:

U.S. taxpayers and businesses spend about 6.1 billion hours a year complying with the filing requirements of the Internal Revenue Code…


Compliance costs are huge both in absolute terms and relative to the amount of tax revenue collected. Based on Bureau of Labor Statistics data on the hourly cost of an employee, [the Taxpayer Advocate Service] estimates that the costs of complying with the individual and corporate income tax requirements for 2008 amounted to $163 billion – or a staggering 11 percent of aggregate income tax receipts…


Individual taxpayers find return preparation so overwhelming that about 60 percent now pay preparers to do it for them. Among unincorporated business taxpayers, the figure rises to about 71 percent. An additional 29 percent of individual taxpayers use tax software to help them prepare their returns, with leading software packages costing $50 or more. IRS researchers estimate the monetary compliance burden of the median individual taxpayer (as measured by income) rose from $220 in 2000 to $258 in 2007, an increase of 17 percent....""From Economix Blog

Short video explanation of Bastiat's "Broken Window Fallacy"---So simple yet so powerful...

Some jobs are saved, some may be created, and some are lost. So what is the net effect of protectionism? Yeah, I don't know either

If a country gets into a trade spat/war with another country, it is important to remember it is a two way street.  As with any fight, the other guy has weapons at his disposal too.  Frederic Bastiat reminds us from the grave, what is "seen" with protectionism are the jobs saved when the government intervenes (because the politicians make sure they tell us) to protect certain industries, but what is "unseen" (or at least murky) are the jobs that are lost or NEVER created by protectionist measures.  Some jobs are saved, some may be created, and some are lost.  So what is the net effect of protectionism? Yeah, I don't know either...Below is a list of states that will likely have causalities in the event of a tit-for-tat trade spat with China...

10 US States That Will Get Murdered If China Slows Its Imports(click on link to see the rest of the states)

#1 California

$9.7 billion of exports to China last year
175% growth over decade
--computers and electronics worth $2.9 billion

--waste and scrap worth $2.1 billion

--machinery (except electrical) worth $925 million

--transportation equipment worth $824 million

--chemicals worth $758 million

#2 Washington

$9.1 billion of exports to China last year

379% growth over decade

--transportation equipment worth $4.1 billion

--crop production worth $3.3 billion

--waste and scrap worth $423 million

--computers and electronics worth $265 million

--minerals and ores worth $134 million

#3 Texas

$8.9 billion of exports to China last year
513% growth over decade
--chemicals worth $3.6 billion

--computers and electronics worth $1.5 billion

--machinery (except electrical) worth $916 million

--crop production worth $703 million

--waste and scrap worth $565 million