Destruction destroys

tl;dr: Effort expended to re-divide the pie is wasted effort, from the impersonal perspective of economic efficiency.

I know! It’s paradoxical, but it’s true. And yet folks (including this blogger) don’t always apply it.

The other day I had a long conversation with an old friend. As usual, we disagreed, and the topic of rent-seeking came up. Rent-seeking is trying to get wealth without adding wealth to the world. Rent-seekers try to be “in the right place at the right time,” so they can collect on existing wealth. Or they try to bring the right place and time to themselves. (Don’t worry, the connection to destruction will become clear.)

Here’s an example. Two people are standing on the bank of a river, waiting for the next load of goods. It’ll be floating down on a raft when it comes, and whoever touches it first gets to keep it all. At first, Ivan is standing downriver from Dmitri. But that won’t last long, now, will it? Ivan will leapfrog around Dmitri so that Ivan’ll have a better chance at touching that raft. And Dmitri, seeing that he has been displaced, will do the same. And so on. They just keep doing it until the raft comes and one of them grabs it.

The problem with this behavior is that it’s wasteful. No extra wealth was generated by all of their silly leapfrogging; the only result of the leapfrogging was a change in who ended up with the goods. So the pair of them gained nothing, and in the meantime wasted their energy (and dignity, no doubt) weaving up and down the bank like a couple of loonies.

Here’s another example, a less…um…obviously made-up one. I think I got it from this EconTalk podcast (sometime between 24 and 34 minutes in, I believe), and it’s theo ne my friend and I were actually talking about. Suppose the federal government is offering a grant to state housing agencies. The grant is $100,000. The people at your state’s housing agency will be willing to pay up to $100,00 to get the grant. They might literally pay a lobbyist or grant writer to help them, or they might incur the costs less directly. But no sane housing bureau would fork over more than $100,000 to get $100,000.

Ah, and there’s the problem: No single sane bureau would do it, but the set of all the state bureaus as a whole might very well spend more than $100,000 in lobbying, cajoling, etc. Ten departments, each spending only $20,000, with an award of $100,000, yields a cost of $200,000 and a benefit of $100,000. That’s waste.

Now, I know what you’re thinking. (At least, I know what my friend was thinking, and for all I know, you are he.*) You’re thinking, “Waste? I should say not! It’s not as though the money was incinerated.** It was spent, i.e. given to people, and those people in turn used in the way they saw fit. The exact same thing would have happened no matter what–someone’s gotta have the money, right?”

But this position is false, false, false. Yes, someone would have had the money no matter how much or how little the state governments lobbied. But the state governments diverted the money from its alternative uses in order to achieve–nothing. $200,000 of alternative uses were forgone in order to realize $100,000 of benefit. Money is not the same as wealth, as resources, as effort, as…as any of the things money can be used to buy. Those things were wasted because they were consumed wastefully.

OK, it’s destruction time. This same pattern–people spending resources without result–appears in the famous “broken window fallacy.” That’s the one, remember, where the window breaks and the townspeople are actually thankful because it will mean more labor for the window repair workers. The problem with their line of thought is that it ignores the alternative uses to which those workers’ talents (and tools, as well as the raw materials from they are made) might have been put. Given a broken window, those resources go toward repairing the window–taking us back to the status quo ante. Given a whole window to begin with, those resources go toward fulfilling the next thing on the list. It’s as though the window, through never needed repair in the first place, maintained itself for free, leaving those window workers and tools available to help in other areas.

Yet somehow people still say that hurricanes, earthquakes, and personal tragedies are blessings in disguise. Now, there may be interesting reasons why this might be so, but the mere fact that they take resources to recover from sure ain’t one of them.

*Yes, I know, he’s probably come around by now, so you’d have to be his past self. I wouldn’t rule it out. The Web’s weird place, man. Gives me the creeps.

**Actually, incinerating the money shouldn’t affect total wealth. It’ll make the owners of that money poorer, but it’ll make the money in everyone else’s hands that much more valuable.

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