A couple of weeks ago, someone sent me a link for a clip on YouTube, an amusing cartoon illustrating something known as the broken window fallacy. The argument goes something like this: a lager lout puts a brick through the window of the local bakery; the baker rings up the glazier, who comes round and fixes it, and when he pays the glazier, the glazier spends his money on something, the business he has patronised spends that money on something else, and so on. The broken window has contributed to the local economy.
The refutation of the fallacy is easy. If one broken window is good for the economy, ten broken windows must be ten times as good. Heck, why stop there? Why not burn down the bakery? Or smash up the whole town for that matter? This particular cartoon points out that if the baker has indeed stimulated the economy with his purchase of a new window and hiring the glazier to fit it, he has done so at a cost. Instead of fitting a new window, he might instead have bought himself a new coat, a luxury he will now have to forgo.
The cartoon points out that the broken window fallacy appears in many forms, and that it is not always easy to spot. That is certainly true, but the problem is that it is only a fallacy when one considers the economy as a whole, perhaps the economy of the entire world. In the early 1990s, I found a particularly bizarre example of a supposedly highly intelligent individual endorsing this piece of nonsense, but instead of simply breaking the baker’s window, he advocated immolating the entire world.
In March 1933, the Daily Express newspaper reported on a speech by the novelist Gilbert Frankau in which he advocated starting a war to solve the “problem” of unemployment. In all earnest he told his audience:
“A war would be a great idea” because it “would give our three million unemployed ample employment”.
He went on to advocate conscription. This was less than a decade and a half after what was then the greatest and most terrible war in all human history. The Great War – as it was then known – was followed by first an uneasy peace and then a worldwide depression. And this jackass could think of nothing better than to start another conflict.
Perverted though his logic may have been, there are indeed people who profit from war, just as the glazier profits from the misfortune of the baker. In war time there is no unemployment. An economy that stalls during peace time, that can’t provide work for willing hands or even basic shelter for many, can as if by magic produce massive quantities of ordnance, military vehicles by the tens of thousand, can transport tens or hundreds of thousands of men at the drop of a hat, and repair the infrastructure while at the same time destroying the infrastructures of distant lands. How can this be? It can happen for two reasons: one is that in war time the normal “laws” of economics are suspended by dint of necessity. Governments operate cheap money policies.
The second reason is that as Professor Quigley points out in Tragedy And Hope, wars are fought by the marshalling of human resources which in the final analysis has little or nothing to do with money. Armaments manufacturers grow rich off war, so do others, most especially, bankers. And after the war has been fought, the bankers keep collecting their interest, even though the cost of the war has already been paid in blood.
At this moment in time, Pakistan is in the grips of a flood of Old Testament proportions. The world is rallying to its cause: governments, international agencies, charities and individuals. The immediate priorities are relief: people need to be removed from the flood waters, they need warm shelter, dry clothes, food, clean water, medicines and so on, but a few months from now the rebuilding will begin. And there will be profits to be made, big profits.
It is legitimate for companies to profit from rebuilding shattered countries, in exactly the same way it is legitimate for a doctor to profit from healing the sick.
Voluntary work is all well and good, as is humanitarian aid, but nobody can afford to work for nothing indefinitely. At the end of the day there will be an enormous bill to pay, and however much aid it receives, at the end of the day, Pakistan will have to pick up the tab, or most of it, but it must not be made to pay twice. The international community, in particular the United States, must pressurise the banks to extend as much credit as necessary for Pakistan to rebuild, that means credit issued at no interest, or at the very least at below market rates. And when the rebuilding has been completed three, five or even ten years from now, there must be no loans left to service. Pakistan must not be allowed to drown first in water, and then in debt. A flood is an act of God; debt-bondage is a creation of man, and can and should be outlawed by him.
[The above was published by Mathaba, August 26, 2010. The original was published as one paragraph; I have reformatted it here to be easier on the eye.]
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