From a lecture given by Dr. Milton Friedman in Erie, Pennsylvania (1978).
This is essentially a restatement of the "parable of the broken window." This fallacy has been known since at least 1850 when French theorist Frédéric Bastiat published a pamphlet entitled, "That Which is Seen and That Which is Not Seen." You can read it here:
It was popularized in 1946 by economist Henry Hazlitt in an important book called, "Economics in One Lesson." It can be downloaded for free from the Foundation for Economic Education here:
John Stossel has a nice little video of this fallacy under the guise of so-called "green jobs." Watch it here:
Stossel also has a great article about this fallacy under yet another guise known as "Cash for Clunkers." Read it here:
From The Boston Globe (1 Sep. 10):
"...the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car's engine, and send the car to be crushed or shredded.
Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it "successful beyond anybody's imagination.'' Which it was, if you define success as getting people to take "free'' money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly."
Also, a report from Edmunds shows that it cost American taxpayers $24,000 to give away $4,500!
From CNN Money / Fortune Magazine (17 Nov. 09):
"Cash for Clunkers. It was a well-intentioned plan that was supposed to increase consumer confidence, spur fuel efficiency, jump-start the auto industry, and help create American jobs.
Instead it disproportionately benefited foreign car companies, which create fewer North American jobs per auto dollar than the Detroit Three do. And sales came mostly from inventory, doing little to increase production and jobs.
What's more, by junking clunkers, the program removed many low-end vehicles from the used-car market, running up prices for the lower-income people who'd normally buy them. So we hurt the people most in need of help, while throwing taxpayer dollars down the drain. "
The last paragraph above is the most important. A well-intentioned plan that hurt the very people it was intended to help? That's the only thing the government does consistently well! To find out one of the reasons why, watch this video:
From WaPo (22 Feb. 10):
"A law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive."
This video is an excerpt from Milton Friedman Speaks: Lecture 13, "Who Protects the Worker?"