A smattering of economic common sense

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The Most Persistent Economic Fallacy of All Time!

This is essentially a restatement of the “parable of the broken window” by French theorist Frédéric Bastiat.

Bastiat’s original parable of the broken window from Ce qu’on voit et ce qu’on ne voit pas (1850):

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane 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.

This came to me on a very opportune day. My dd just emailed her dismay that she fried their laptop. They were planning to upgrade soon anyway, so you might think it’s not that big a deal for them economically.

In fact, reasoning along the line of the broken window, the $100 they will have to cough up to retrieve the data on the hard drive will be good for some computer tech guy.

But continuing on to the things not seen … how about this used laptop that will now NOT be going on the market where some person who has an even older, crappier computer could afford to upgrade?

This is what happened with Obama’s Cash for Clunkers program. Very few buyers used that program who were not already planning to buy a new car anyway. They took advantage of the rebate, caused a short spike in car sales, which was immediately followed by a slump during the following months when those now sated new car owners were NOT shopping. It also took all those clunkers out of the used car market, which happens to be an important resource for those who need less expensive than brand new transportation.

You can read Bastiat’s entire pamphlet here: http://bastiat.org/en/twisatwins.html. It is well worth your time.

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