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Friday, June 15, 2012

Economics in One Lesson by Henry Hazlitt

Public Works Mean Taxes

The same reasoning applies, of course, to every other form of public work. It applies just as well, for example, to the erection, with public funds, of housing for people of low incomes. All that happens is that money is taken away through taxes from families of higher income (and perhaps a little from families of even lower income) to force them to subsidize these selected families with low incomes and enable them to live in better housing for the same rent or for lower rent than previously.

I do not intend to enter here into all the pros and cons of public housing. I am concerned only to point out the error in two of the arguments most frequently put forward in favor of public housing. One is the argument that it “creates employment”; the other that it creates wealth which would not otherwise have been produced. Both of these arguments are false, because they overlook what is lost through taxation. Taxation for public housing destroys as many jobs in other lines as it creates in housing. It also results in unbuilt private homes, in unmade washing machines and refrigerators, and in lack of innumerable other commodities and services.

And none of this is answered by the sort of reply which points out, for example, that public housing does not have to be financed by a lump sum capital appropriation, but merely by annual rent subsidies. This simply means that the cost to the taxpayers is spread over many years instead of being concentrated into one. Such technicalities are irrelevant to the main point.

The great psychological advantage of the public housing advocates is that men are seen at work on the houses when they are going up, and the houses are seen when they are finished. People live in them, and proudly show their friends through the rooms. The jobs destroyed by the taxes for the housing are not seen, nor are the goods and services that were never made. It takes a concentrated effort of thought, and a new effort each time the houses and the happy people in them are seen, to think of the wealth that was not created instead. Is it surprising that the champions of public housing should dismiss this, if it is brought to their attention, as a world of imagination, as the objections of pure theory, while they point to the public housing that exists? As a character in Bernard Shaw’s Saint Joan replies when told of the theory of Pythagoras that the earth is round and revolves around the sun: “What an utter fool! Couldn’t he use his eyes?”

We must apply the same reasoning, once more, to great projects like the Tennessee Valley Authority. Here, because of sheer size, the danger of optical illusion is greater than ever. Here is a mighty dam, a stupendous arc of steel and concrete, “greater than anything that private capital could have built,” the fetish of photographers, the heaven of socialists, the most often used symbol of the miracles of public construction, ownership and operation. Here are mighty generators and power houses. Here is a whole region, it is said, lifted to a higher economic level, attracting factories and industries that could not otherwise have existed. And it is all presented, in the panegyrics of its partisans, as a net economic gain without offsets.
We need not go here into the merits of the TVA or public projects like it. But this time we need a special effort of the imagination, which few people seem able to make, to look at the debit side of the ledger. If taxes are taken from individuals and corporations, and spent in one particular section of the country, why should it cause surprise, why should it be regarded as a miracle, if that section becomes comparatively richer? Other sections of the country, we should remember, are then comparatively poorer. The thing so great that “private capital could not have built it” has in fact been built by private capital—the capital that was expropriated in taxes (or, if the money was borrowed, that eventually must be expropriated in taxes). Again we must make an effort of the imagination to see the private power plants, the private homes, the typewriters and television sets that were never allowed to come into existence because of the money that was taken from people all over the country to build the photogenic Norris Dam.

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