President Bachelet spent a couple of hours yesterday supervising the construction of some of the 25,000 apartments that the Chilean government is building for low income families. The construction of these apartments is part of a program elegantly labeled the “Extraordinary Program of Economic Reactivation and Social Integration,” under which the Chilean government is spending more than US$ 1 billion.
The President emphasized yesterday that the program has two goals: to build housing for low income families and to reactivate the economy creating more than 100 thousand jobs. An that’s the way you do Keynesian economics in Chile.
I have already expressed my concerns about the direction that Chile has been taking in recent years. This program is just another example. Let’s point out the most obvious problems with this initiative.
- Where is the money coming from? How did the government get $1 billion to spend in apartments? It all comes from taxes, of course. Essentially, the government is taking forcefully the money from some Chileans to spend on housing for some other Chileans. The fact that the government does spend the money is the crucial Keynesian component. The President will argue that those resources are generating jobs, increasing sales and generating a multiplier effect that helps reactivate the economy. This idea is simply wrong. Remember the “broken window fallacy”? If all you need is spending then brake a window, the owner of the house will have to spend money to fix it and that will increase sales at the local Home Depot and generate a multiplier effect as the owners and employees of Home Depot buy supplies, groceries, etc. Brake enough windows and you will reactivate any economy. If Bachelet wouldn’t have taken $1 billion in taxes from the first group of Chileans, these would have spend it or invest it and that would have generated a similar or even a bigger multiplier effect.
- Ok, but ins’t it good to spend on social housing? It is if you are spending your own money. But not so much if your good deed is done with money that belongs to somebody else. Is it moral to steal money from a rich person only to give it to a poor person?