Andrew Colclough

This seems unfortunately familiar:

Political capitol is nearly always gained from seeing immediate results. You can be fairly certain that the Economic Recovery and Reinvestment Act (aka. Stimulus plan) will garner the same results.

The federal government is seen as doing something about the economic downturn. The public see all sorts of impressive looking projects. For instance, in Eugene, road crews are stringing up a massive suspension footbridge over Delta Highway.

Here are a few questions that should be asked:

Are people adding up a cost/benefit for the city to have a footbridge in this particular location?
Is anyone wondering what happens to the bridge workers jobs when the project is completed, or with whose money their current salaries are paid?
Does it really matter that the bridge basically goes from nothing, to nowhere?
What alternative things would taxpayers have spent their money on, had they the choice?

Today’s Wall Street Journal profiles the world’s largest wind farm.  One local politician, Greg Wortham, hailed the Roscoe, TX farm as a model for the rest of the country, citing all the jobs it’s brought:

… 20% of Nolan County's jobs are related to the wind-development rush here -- as many as those in oil and gas…

Oops. It turns out most of those jobs were temporary.

… At the peak of its building, the Roscoe wind project employed 600 people, said Patrick Woodson, chief development officer for E.On Climate & Renewables. Now the project employs about 10 permanent staffers … 60 contractors … .

The article fails to mention one thing: The farm was built with $121,903,306 in subsidies.

So did this project actually create new jobs?  No. This is another example of Frederic Bastiat’s broken window fallacy.  Applauding the jobs that result from the subsidy ignores the fact that, had the money not been taxed away and given to the wind farm, it would have been spent elsewhere.  All the subsidy did was steal money from other activities to give to a politically-favored business. That makes for good headlines and allows bureaucrats to feel good about themselves. But it doesn’t create jobs – green or otherwise.

If “green” jobs make sense, the market will create them. Viable businesses don’t need a multi-million handout to get started. Private entrepreneurs will invest their own money to profit from investments that really work.

If green energy is good idea, it’ll just happen.

If it’s a good idea.

Stossel nails this one. The Broken Window Fallacy may be the most prevalent thinking error in modern day politics and economics. And it may also be the oldest. Read Bastiat! He wrote about it this in the 1800s when the French politicians were promoting the same ludicrous notion that you can "create jobs" by simply removing wealth from one place, and placing it someplace else. Anyone with a basic grasp of mathematics should be able to see that you are simply shifting wealth around - not creating wealth -- something which actually creates jobs.

Bastiat's writings are easy reading, free, and as certainly as relevant today as there were in the 1800s. Read them all at Bastiat.org.

"No legal plunder: This is the principle of justice, peace, order, stability, harmony, and logic. Until the day of my death, I shall proclaim this principle with all the force of my lungs (which alas! is all too inadequate)."

-Frédéric Bastiat, The Law

The Broken Window

Let us begin with the simplest illustration possible: let us, emulating Bastiat, choose a broken pane of glass.

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 sum. 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 a 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 a 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.

Bastiat: What is Seen and What is Not Seen

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

1.2
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

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Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

The recent program "Cash for Clunkers" was a direct application of the Broken Window Fallacy. In theory - it sounds like a great way to get old crappy cars off the roads, while stimulating the economy by getting people to purchase vehicles. This was the Seen. But what of the Un-seen?