...and, heck, I might not need to...
The broken window fallacy.
Move along if you know what this is. If not, boy are you in for some disappointment (with the vast majority of government programs in general, and economic 'stimulus' packages in particular).
Discussing the debacle that is the Cash for Clunkers program, Mark Perry links to a Cato piece that discusses some of the program's...umm...shortcomings (I'm being as charitable as possible).
We're not necessarily concerned with the C4C program here, though it should be lambasted and ridiculed as often and as loudly as possible. We're more interested in an excerpt from Henry Hazlitt's apparently-excellent short book, Economics in One Lesson, which I have yet to read. I have read Sowell's similar piece, Basic Economics, and flipped through his shorter treatment of the general topic, Economic facts and fallacies. I can wholeheartedly recommend anything Sowell writes, and I know Anthony would too.
Back to Hazlitt: a commenter on Mark Perry's blog included an excerpt out of Hazlitt's book. This refers to the 'broken window fallacy,' originally put down by Frederic Bastiat a couple hundred years ago in France. Yes, econ is relatively timeless...at least, the principles are...we keep trying to find new ways to make it make sense...
The Broken Window
A young hoodlum, say, heaves a brick through the window of a baker's shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sun. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace the window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
The glazier's gain of business, in short, is merely the tailor's loss of business. No new "employment" has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.
The seen is what is always touted by the politicians. The unseen is what economists are often tasked with reminding everyone of. This is the essence of tradeoffs, a word that can't be repeated enough. This is why economics are important in whatever conversation you're having, whether that be about the economy, environment, or anything else (whoever asked that the other day on Brian's post about consensus and the environment, sorry I didn't comment there).
The commenter at Mark's blog also included the following postscript, which I'll include, as it sizes up the situation rather well:
People who are ignorant of economic knowledge love programs like the cash for clunkers fiasco because they do not account for what is not seen. While they see a benefit as the Ontario Toyota plants sell more vehicles to American consumers they do not see the fact that the local garage has less work because cars that would have been repaired have been taken off the road. While they see Avis get a better price for its used cars they do not see that consumers that could only afford a clunker see their prices increase because of the destruction of supply. While they see dealers see their receipts increase they don't see charities, which sold donated cars see their receipts go down. And so on, and so on, and so on,...
I am sorry my friend but destroying value is never a good idea, particularly when the nation that is choosing to destroy value is bankrupt.
Now, I (Shawn) actually don't think that the nation is 'bankrupt,' per se
, but the point still stands w/o that bit of hyperbole.