Economics video of the week: On Wealth Creation

In today’s video, Yaron Brook discusses the “zero-sum game” fallacy in economics in this PJTV interview. This interview is based on themes developed in Dr. Brook’s recent article on, co-authored with Don Watkins. Recorded June 17, 2011.


“We’ve heard it a million times: the rich get the pie, the poor get the crumbs. But Yaron Brook and the Front Page team explain why there is no “wealth pie” waiting to be sliced. We make our pies, so get out your cookbook.”

via: The Ayn Rand Center for Individual Rights

Recommended links:

The economics of disaster after devastation in Japan

“Japan will be poorer, for this disaster,” said Peter Morici, a business professor at the University of Maryland.

Toyota Motor Corp., the world’s biggest automaker, tumbled 7.9 percent after saying it would suspend manufacturing at its domestic plants through Wednesday — a production loss of 40,000 cars. Other manufacturers forced to halt production, such as Sony Corp. and Honda Motor Co., also slumped.

Much has been said in the aftermath of the earthquakes (the biggest with an intensity of 8.9 in the Richter Scale) and tsunami (with waves >10 meter high) that hit Japan last Friday.  First, the headcount of deaths has already reached 10K people and thousands more are still missing.  The first estimates on the economic impact stroked world’s stock markets and the price of petroleum fell in estimations of Japan’s industrial paralysis.

However, some economists would argue that the destruction caused by these natural disasters had something positive at the end of the day. Such is what had previously said Lawrence Summers, president emeritus of Harvard University that “It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place. In the wake of the earlier Kobe earthquake, Japan actually gained some economic strength” Many other economist believe the same as Mr. Summers and the reason is that an enormous influx of liquidity is to enter Japan’s long stagnant economy.  Already, Japan’s central bank pumped a record $184 billion into money markets and took other measures to protect a teetering economy today, as the Tokyo stock market nose-dived followed the devastating earthquakes and tsunami.  Afterward, large scale reconstruction plans are to start and billions of dollars would be pumped to reconstruct the country.  Overall, this huge reconstruction investments could trigger the recovery of Japan’s economy.

So, is everything going to be better?

Japanese culture and attitudes toward disasters has always been identified with the adjectives “pro activity, benevolence, cooperation and honesty”.  As such, looting has not occurred and reconstruction has started after only 3 days of the disasters.   However, the economy is not going to recover positively from this disasters no matter how much money is pumped into the economy to reconstruct by private companies or public investment.

Why is that the economy will continue suffering?

The destruction of business and public services had been working efficiently under market laws. This means that there is no relation to “creative destruction” and destruction occurred because of natural disasters.  Creative destruction applies only to businesses that were not competitive and as such, disappeared to open new investment in new industries and technologies.  A good example of creative destruction was how American Car Industry should have disappeared after the 2008 financial crisis to allow for more competitive companies (bailouts avoided it causing long term inefficiencies and economic loses to the US).

The reconstruction of Japan will require billions and this would surely ignite the tentacles of governmental interventionists agencies under the fallacy that the earthquake and tsunami were good things for Japan.  Government interventionism always deems disaster good to the system since it allows them pump more taxes and extort more money from private businesses.

Rebuilding Japan will be a hard and difficult work and estimates of the are at up to 15 trillion yen ($183 billion) — about 3 percent of gross domestic product.  Credit Suisse’s Shirakawa said in a report the direct economic losses such as property destruction could total 6 trillion yen ($73 billion) to 7 trillion yen. Indirect losses such as lost production will probably be higher.  The costs of reconstruction are at a high loss for the Japanese people and the rest of humanity.  This historical moment will again open the doors for collectivist ideologies that consider the sacrifice of individual rights to benefit the public good.

Evidence and history has shown that reconstruction and investment is more quickly, effective and has better long term effects if kept private and in respect of individual’s rights.  Lord Acton’s essay “The fallacy of the broken window” is a great example of how destruction is not always positive and of how reconstruction should be organized by a government that respects an individual’s right to his rights and property.  It is now our obligation to remind this to leaders of world governments.

Here’s a great video explaining it,

Video: The broken window fallacy

Remember the Swine Flu chaos?

Here’s one more example of how Google Trends could be a useful tool to tell if something has been researched, talked or studied long enough to avoid a problem (in this case a pandemic health problem).

Image of Google Flu Trends (February 15th, 2011)

In the last 5 years there hasn’t been much news on swine flu in the news. Now the US and the rest of the world is trying to find out a way of stopping the pandemia; if lucky they will get to stop it soon enough before more people dies. A vaccine won’t be ready in the near future and once again the government seems to be failing to “miraculously solve” our problems.

In democratic systems like ours, it is in moments of crisis that civilians demand government intervention on their private rights. Those interventions include telling what we should do, how and when. Borders are closed and commerce declines. History has shown that this tendency has been present all over the last 4,000 years. Are we heading to the same mistakes or at least very similar ones?

It looked like the flu pandemic the world had been dreading for 50 years: A virus, seen only in animals for several decades, had made the leap to humans and, more ominously, had passed from person to person.

Yet for the first time in history, scientific knowledge and government funding might be able to stop the flu in its tracks, saving a million lives at risk. Within months, Americans were lining up to be vaccinated against the virus. Then, in another triumph of nature’s unpredictability over human planning, the flu virus simply disappeared.

Incubated in pigs but not seen in humans since the 1920s, swine flu broke out in February 1976 at an Army base in New Jersey.

However noble the sentiment, the National Swine Flu Immunization Program, announced by President Gerald Ford just a month after the virus had been identified, became a public-health debacle that probably cost more lives than it saved. (read more: Deja Vu: Politics greeted outbreak of swine flu in 1976).

The power of intellectuals

“Sowell (Thomas Sowell) points out that intellectuals want others to be forced to submit to their ideas, while remaining blithely oblivious to their negative results.” John Swayze’s comment in Facebook

This is exactly what is happening with a long list of so-called intellectual in what you may consider the socialist and colectivists groups of Guatemala regarding a Constitutional reform proposed by a group of academics in ProReforma.  The proposal aims to correct some of Guatemala’s Constitutional Articles that violate the rights to property, individual freedom, and that seeks to create better checks and balances, and government controls.

Guatemala is today one of the most corrupt  and dangerous countries of the world.  Daily, dozens of men die because of crimes in populated areas of the country and every day it is a lot harder to keep a business open without suffering the consequences of corruption.

I have lived here for 25 years and I can truly say that we are not doing better.  Criminals have taken control of government and corruption is widespread.  ProReforma is the only viable solution proposed by an intellectual elite since the 80s.

Stossel y la rebelión de Atlas en el 2010

John Stossel es uno de los periodistas independientes más importantes de los Estados Unidos.  Trabajó como creador y conductor del programa 20/20 en la cadena de televisión ABC News durante muchos años.  El programa 20/20 se popularizó rápidamente en los Estados Unidos y el mundo entero por su efectiva y carismática difusión de las ideas de la Libertad y los principios de los Padres de la Independencia estadounidenses.  Por este motivo, John Stossel recibió un doctorado honoris causa por la Universidad Francisco Marroquín en el año 2008.

A partir del año 2010 Stossel mudó su programa al canal de noticias Fox News Channel y el primer programa salió al aire el 07 de enero de 2010.  Este programa fue dedicado a estudiar la novela “La rebelión de Atlas” escrita hace más de 50 años por la filósofa ruso-americana Ayn Rand.

A pesar de tener más de 50 años de haber sido publicada, la novela es el día de hoy un bestseller alcanzando ventas record en el año 2009.  Desde su publicación, la novela ha vendido más de 7 millones de copias y tan sólo en el primer trimestre del año 2008 había vendido ya más de 300,000 copias.

La novela, medio siglo después de haber sido escrita, es considerada por muchos una predicción clara y fehaciente de la coyuntura política y económica actual de Estados Unidos y el mundo entero.  En la novela, líderes empresariales y genios creadores deciden irse al paro y alejarse de una sociedad que los condena.  En esa sociedad descrita por Ayn Rand, los dirigentes gubernamentales fomentan la colectivización de la propiedad privada, la redistribución de la riqueza y la interferencia gubernamental en la economía.  Así, las decisiones tomadas por el gobierno de Barack Obama y por otros gobernantes del mundo luego del inicio de la crisis financiera en el año 2008 empezó a concretarse tal y como la novela de Ayn Rand relata.

Los gobernantes, empezando por el gobierno de Barack Obama, intervinieron la economía en un afán por “rescatar” a empresas que habían demostrado ser ineficientes, a bancos que habían malversado dinero de sus acreedores y cientos de millones de dólares han sido entregados desde el año 2008 para rescatar a empresas alrededor del mundo.

Ayn Rand desarrolló una filosofía a la que nombró Objetivismo.  Esa filosofía considera al hombre como un fin en sí mismo y su sistema filosófico se fundamenta en la búsqueda de la felicidad de los individuos a través de los principios de una sociedad capitalista.

Para conocer más el impacto de la obra escrita por Ayn Rand los invito a escuchar el programa que contó con la participación del banquero y emprendedor John Allison III, con Yaron Brook, presidente del The Ayn Rand Institute, con C. Bradley Thompson de la Universidad de Clemson y con el editor de la Reason magazine, el sr. Nick Gillespie.