Anton Howes over at the Adam Smith Institute has kindly supplied a reply to my previous post on the economics of The Hobbit. I hope that we will have many exchanges on the economics of Middle Earth and, hopefully, supply answers to the mysteries of Middle Earth life (please suggest topics which you would like debated below).

In Anton’s post he equates my arguments to that of the broken window fallacy, of which he raises a valid point. Destruction does not always create a boom, but when a people have to rebuild their lives from scratch there does tend to be a post-destruction period of economic growth – a recent real-life example is Japan post earthquake/tsunami. I suspect that the destruction of Erebor and Dale by the dragon Smaug would be on a greater scale than Japan, producing a period of growth. By the time that the events with Bilbo occur, enough time has passed for the detrimental effects of such destruction to be negligible.

The most important piece of Anton’s post is, in my opinion this:

what actually matters in economics: economic growth and production are only important because they satisfy peoples’ demands and values.

Whilst that is theoretically admirable, in any economy there has to be winners and losers. It would, of course, be nice if everyone could win. But if everyone won and got satisfaction then automatically everyone would be a loser and unsatisfied. This is because everyone’s goals and values are different from each other and that breeds competition and competition fosters loss and disappointment, but it also means victory and great joy.

Like dragons, it is wise never to laugh at living people as you never know when they’re going to have the upper hand.

UPDATE: Please read this insightful comment from Dr Dan https://guerrillaeconomist.com/2013/01/03/the-economic-consequences-of-smaug/#comment-220 

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