I started to write this posting a month ago. As I started my research about the broken window economic “fable” I found out that it is attributed to Henry Hazlitt. He was a noted economist that I had never heard about. I really wanted to find out about his thoughts and purchased his book, Economics In One Lesson.
More about the book in a later posting, but here is an abbreviated version of the broken window:
“A person throws a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the person is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and shattered glass over the bread and pies.
After a while the crowd feels the need for philosophic reflection. 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? If windows were never broken, what would happen to the glass business? Fixing the window will allow the glazier to spend money with other merchants.
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 person who threw the brick, far from being a public menace, was a public benefactor.”
As you follow the logic, it seems to make sense. Moving beyond the fable, as I look back to when Hurricane Katrina devastated the Gulf Coast, I heard similar claims by numerous talking heads. They were talking about the jobs that would be created by the clean up and restoration. Aid and tax dollars flooded into the region and jobs were created.
If the broken window really works, why not take it to a logical conclusion and create disasters. Why not just blow up stuff to create jobs? You could clear the residents out of a small area, blow it up and wait for the jobs to come. Think of it as an Anti-Field of Dreams. Destroy it and they will come.
That is extreme, but if you agree with the logic of the broken window, follow it and expand it jobs will be created. Remember that there were news persons who speculated on Katrina’s job creation.
If you noticed, I called the broken window a fable. The broken window did create a demand for the glazier, however, rather than “creating” a demand the broken window merely diverted a demand. Think back to the baker. He not only had to get a new window, but he lost his bread and pies when the glass was smashed and possibly was not able to re-open his store until all the repairs were complete.
If we had been able to question him we may have found out that because of the lost income and money he unexpectedly had to pay, he had to delay a planned expansion of his business. Maybe he was planning to add a second shop or upgrade his ovens so he could produce more. The baker was not able to decide how to spend HIS money because of the actions of the vandal.
Disasters like Katrina do bring money and jobs into a region, temporarily. Take the time to read some of the articles about the cost of Katrina on taxpayers. That was a natural disaster and the money spent was necessary to help our fellow citizens. I am not suggesting otherwise.
Fast forward to today. Consider current plans to stimulate the economy and create jobs. Our elected officials are just taking money away from one group and giving it to their selected group. I feel like the baker in this farce.
The broken window shows the strategy most economic pundits use. They discuss the benefits of their policy on the selected group. They often trot out members of the affected group they want to help. The pundits, however, never acknowledge or consider the unseen folks affected by denying their use of their money. Since they are unseen, no one cares about them.
Guess what? We are the unseen. It is our money being diverted from our use.