Creative destruction

A Calgary radio station is on the receiving end of a barrage of ill-informed criticism after incinerating $5,000 in cash. Which wouldn’t be what I would do if someone gave me $5,000, but hey, different strokes. But what’s fascinating about the story is how clearly it illustrates the inability of people to think rationally about money and macroeconomics. Take for example the following:

“It’s disgusting, a gross use of resources,” said Jordan Hamilton of the Calgary Drop-In, a non-profit group.

The problem is that money isn’t, in any economically meaningful sense of the term, a resource. You can’t actually feed or shelter someone with money. Currency is a medium of exchange. The only value that was destroyed here was the replacement cost of actually producing the bills. Cash, just like that destroyed by the radio station can be created by the bank of Canada. It would be completely trivial for them to simply print off another 50 $100 bills to replace those that were destroyed. But because $5,000 is completely negligible (0.000 007% of M0), they probably won’t. Vastly greater sums of money are being created and destroyed on bank balance sheets all the time.

If they’d destroyed an actual resource that wouldn’t be true. If they’d incinerated $5,000 worth of food, or done equivalent in damage to a building, it would actually require real work and and energy and material goods to replace, resources that might have gone elsewhere.

Regarding the sanctimonious blather about charities wrapped around the economic imbecility, the less said the better. If you care so much, send a cheque yourself and stop being such shrieking moralistic harridan about what other people do with their money.

(If you are an actual economist, and this analysis is wrong, let me know.)

Advertisements