Are Ray-Guns “Idle Resources”?
| Peter Klein |
Several people have called to my attention this extraordinary interview in which Paul Krugman states his belief that a military buildup to fight a mythical alien invasion would pull the economy out of recession. I guess it would be more entertaining than paying people to dig holes in the ground and paying other people to dig them up. Were Krugman’s remarks tongue-in-cheek? Unlikely, as he seems to believe in a sort of old-school, 1950s-era, hydraulic Keynesianism, and hasn’t otherwise demonstrated a sense of humor.
Of course, as Bob Higgs has tirelessly demonstrated, World War II didn’t end the Great Depression, but that doesn’t stop this canard being trotted out every time someone wants to justify deficit spending. Notes Mary Theroux: “the Great Depression ended in 1946, when 10 million individuals were returned to the ranks of the unemployed, and federal spending plunged 40% in the aftermath of FDR’s death and the abandonment of the New Deal.” But the more fundamental point is that spending for spending’s sake does not increase economic well-being. To see why, we must challenge the core Keynesian concept of “idle resources,” the idea that, when the economy is away from “full employment,” the usual laws of microeconomics — resources are scarce, decision-makers face tradeoffs at the margin, costs are opportunity costs — don’t apply. As Brad Delong recently put it in one of his characteristically classy missives: during a recession, “[t]he full-employment world of Bastiat is very very far away.” Of course, Bastiat’s brilliant demonstration of hidden costs and the fallacy of spending one’s way into prosperity has nothing to do with “full employment,” a concept that isn’t even coherent, given that efficiency in resource employment makes sense only with regard to the subjective production plan of the entrepreneur (cf. Penrose, 1959; Kirzner, 1966).
W. H. Hutt’s powerful and underappreciated critique of Keynes, The Theory of Idle Resources (1939) — available for free download at Mises.org — attacks this core Keynesian concept. As Hutt explains, all resources have alternative uses, and even “idleness” is a use, in the sense that the resource owner prefers to hold the resource for a future, as-yet-unavailable or unimagined use — a real option, if you like. Dragooning such resources into some random use, outside the price mechanism, serves no productive purpose. Even outside the mythical world of “full employment,” there are no free lunches.
So put those ray-guns back into storage, boys. We may need them later.