The Broken Window Fallacy
In my web travels, looking for something else, I just came upon the very sensible Bastiat piece, "The Broken Window," on Mises Daily. It's worth reading. Here's an excerpt:
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade -- that it encourages that trade to the amount of six francs -- I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs: this is that which is seen.
If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
An article in The New York Times on the stupidity of "make-work" jobs.
Of course, it's actually even worse than that. Rather that creating something new - thereby increasing his living standard - the shopkeeper has had to spend 6 francs just to regain his old standard of living. In this sense, his life is now poorer by 6 francs.
a_random_guy at October 15, 2011 5:41 AM
You're right. That was worth reading and it makes a lot of sense.
Germane to your subsequent posts I ask, "So why isn't the shopkeeper putting his six francs somewhere else?"
That's "what's wrong" with one percent controlling the majority of the wealth of a nation. It's not that it's morally wrong, it's that it breaks the system.
whistleDick at October 15, 2011 8:21 AM
> That's "what's wrong" with one percent
> controlling the majority of the wealth
> of a nation.
whistleDick, are you on the dole?
"The wealth of a nation" is limitless. It can't be stolen and it can't be hoarded. We can always make more.
Crid [CridComment at gmail] at October 15, 2011 10:38 AM
Crid,
No, I'm not on the dole. What would prompt you to say such a thing?
You can't always make more. If there are no customers with the means to buy the services or products you're offering, you're done.
I don't think I've seen one of your posts make any sense.
Are you on the sauce?
whistleDick at October 15, 2011 12:43 PM
> No, I'm not on the dole.
Under Amy's next post, we learn that you're a government employee, a distinction with a vanishing difference.
> You can't always make more. If there are no
> customers
Someone on this planet always wants something. Always. And they want it better than they found it. If you figure out how to improve it for them, you get paid.
Crid [CridComment at gmail] at October 15, 2011 4:48 PM
This is the same as requiring funding for non-economic green energy. It diverts money from more productive uses.
Tony K at October 15, 2011 6:27 PM
"This is the same as requiring funding for non-economic green energy. It diverts money from more productive uses."
Actually it's even worse than that. The breakage of the glass represents destruction of wealth, but at least when the glazier replaces the broken window, he is providing a service that the shopkeeper wants and is willing to pay for. And presumably the glazier's business does not consist solely of replacing broken windows; new shops open and older shops decide to update their windows all the time. Even the poor guy who got his window broken may benefit from this somewhat; his new window may be of some better quality glass, or more energy efficient, at the same price as the older one because investments have been made in improving the product since the old one was made.
By contrast, with Solyndra, they were being paid to make a product that no one wanted in the first place; as I understand it, their product was more expensive and provided no advantages over conventional flat-plane solar cells, hence no market. Further, as long as they were being paid to make a product that nobody wanted, no incentive existed to improve the product. In our scenario, it's like paying the glazier to make a bunch of windows, immediately break then, and then make more. It's money down a rathole, producing nothing of value in the first place. May as well stack the money up in a pile and have a bonfire.
Cousin Dave at October 15, 2011 6:59 PM
Stimulus Plan
The Broken Window Fallacy is written all over it.
[0] Take $880 billion from the economy. ($2,930 per man, woman, and child). Do not adjust the GDP statistics, because this money was surely just lying around doing nothing.
- - - -
[1] Spend (or give if you must) the money on worthy projects and people associated with the government.
(see Crumbling Infrastructure at http://cafehayek.com/2011/09/crumbling.html )
[2] Make an accounting entry in the statistics "US GDP +$880 billion".
[3] Proclaim to the public that you have increased GDP by $880 billion and have created 3.3 million jobs (or job equivalents).
How to compute jobs: Divide $880 billion by $30,000 per job = 30 million jobs (approximately). Over three years = 10 million jobs sustained each year. Adjust for government fraud and abuse (n/3) = 3.3 million jobs.
[4] Proclaim that all intelligent economists agree with you, to gain more public confidence.
[5] If it doesn't seem to work, try, try again until re-election or ruin.
Important Note:
Omit step [0] above from all interdepartmental communications and press releases. This step is classified. If you are questioned, and really pinned to the wall, go off the record and explain that we are merely transfering some wealth from the future (where it isn't yet needed) into the present (where we desperately need it for re-election).
Avoid any speculation that we cannot really take resources from the future. Yes, we can only take resources available today and put them to a different use, supporting our friends in the government and infrastructure community. The future will eventually arrive and take care of itself, when we may be out of office anyway.
Stimulus Does Not Cure a Recession
Andrew_M_Garland at October 15, 2011 8:50 PM
I'd be taking the six francs out of the kids allowance.
nonegiven at October 16, 2011 12:26 PM
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