There are many obvious and significant differences between the conditions of people in developed countries and that of people from poverty stricken nations, which seem to be constantly stuck in reverse. The most outstanding and defining difference is the average level of wealth of the individuals.

Those societies that allow individuals to accumulate wealth and protect it from predators develop into prosperous well-developed economies with extensive trade. Those that don’t do that allow their citizens to be prey, and victims of violence and theft. The protection of the property of citizens results in the accumulation of wealth and the establishment of a strong middle class. A rule of law that protects property enables even the poorest of people to escape poverty, a phenomenon that occurs on a regular basis in free societies with strong property rights, as demonstrated by studies that follow the paths of families over time.

That is an incredibly important insight. Families and societies advance by increasing their wealth. While there are various definitions of wealth, one that seems most appropriate to me is this: Wealth is the accumulation of the things that people need and desire. Destruction, in an economic sense, is the diminishing of wealth.

The “broken window fallacy” is a parable given to us a century and a half ago by Frédéric Bastiat. I have written about it and its effects a number of times over the years, but only because it occurs in modern politics on such a regular, recurring basis, in all sorts of clever new ways. The point of the parable is that the destruction of a particular object embodying the wealth of one person may benefit particular parties, those who may be needed to repair or replace it, that destruction is never good for the victim and is a reduction in the wealth of society as a whole. Wealth cannot be created by the destruction of an item valued by people. It may sound like a pretty bold statement, but there is no exception, ever.

I have had discussions with people who give counter-examples in an effort to prove that statement wrong. In each example, the idea of destruction of value is equated with the concept of demolition. Wouldn’t the case of an old, rickety building that is unused, and is a fire and safety hazard to those living in the area, be an instance of destruction improving the wealth of society? It might be a case of demolition improving the wealth and well being of the people, but there happens to be little or no wealth embodied in the building. It is more a liability, a case of negative wealth. Its value had been previously destroyed by age, weather, use, and obsolescence, factors independent of the demolition.

One of the most absurd instances of the broken window fallacy has to do with the destruction of vehicles, the infamous cash-for-clunkers program. Not only did the program not help the economy as a whole, it hurt the very people that its proponents purport to help. Who buys those clunkers on a regular basis? The poor, those who cannot afford new vehicles. By destroying low cost vehicles and subsidizing the prices of replacement vehicles, the poor have fewer cars to choose from and have to pay a higher price for them. Even those who were silly enough to take the bait ended up losing. The credits drove up the prices of replacement vehicles, which eliminated much of the benefit of the credit. The credit is taxable to the receiver so, in some cases, the individual actually lost money by taking the credit, and got the baggage of another monthly payment to boot. The destruction of good, usable cars reduced the amount of wealth and well being for everyone except auto manufacturers.

Why bring that up now, since that program is long gone? Surpise! There is another attempt to stimulate wealth accumulation by destroying wealth: the cash for appliances program. Of course, the appliance manufacturers and dealers love it. They get to sell more as taxpayers pick up the tab. If an item, such as a refrigerator, was valuable before it was traded in for new one, it could have been sold at a discount to someone who couldn’t afford a new one. If it wasn’t valuable before the trade, then the owner would have been in the market for a new one anyway. The various cash for clunkers programs merely transfer wealth from one person to another. You don’t create wealth by destroying stuff.