From Common Sense Economics eBook: What Everyone Should Know about Wealth and Prosperity:
As Adam Smith noted some 240 years ago, consumption is the objective of all production. But, consumption comes before production only in the dictionary. Income and living standards cannot increase without an increase in the production of goods and services that people value.
Clearly, destroying commonly traded goods that people value will make a society worse off. This proposition is so intuitively obvious that it almost seems silly to highlight it. But policies based on the fallacious idea that destroying goods will benefit society have sometimes been adopted. In 1933, Congress passed the Agricultural Adjustment Act (AAA) in an effort to reduce supply and thus prevent the prices of agricultural products from falling. Under this New Deal legislation, the federal government paid farmers to plow under portions of their cotton, corn, wheat, and other crops. Potato farmers were paid to spray their potatoes with dye so they would be unfit for human consumption. Healthy cattle, sheep, and pigs were slaughtered and buried in mass graves in order to keep them off of the market. Six million baby pigs were killed under the AAA in 1933 alone. The Supreme Court declared the act unconstitutional in 1936, but not before it had kept millions of valuable agricultural products from American consumers. Moreover, under modified forms of the Act, even today the government continues to pay various farmers to limit their production. While the political demands of those benefiting from the policies are understandable, such programs destroy valuable resources, making the nation poorer.
- The goal of destroying resources is to raise the price of the remaining goods. Who benefits and who is harmed by such increases in prices?
- Cash for Clunkers was a more recent example of such a policy. Do you know anyone who benefited from Cash for Clunkers? At whose cost did that benefit come?
- Bastiat is famous for describing the unintended consequences of actions to affect the economy. What are some of the unintended consequences of destroying used cars? For instance, what might be some of the environmental effects? Provide both positive and negative examples.
This reading is an excerpt from Certell’s Common Sense Economics eBook. Certell offers curriculum materials and eBooks free of charge for students and teachers. Click Here to download the Common Sense Economics Materials.
26, Feb. 2018, The Broken Windwo [Digital image]. Retrieved from <google.com>.