Saturday, February 27, 2010

Economics Made Easy

This will be the part of a two part series which will allow you to win almost any argument with a socialist/liberal/progressive/republican/democrat who advocates some kind of state intervention into the economy for some "public good".  The "series" will feature two very easy to understand illustrations for why government programs do not work to create wealth and prosperity.

The first of these is Bastiat's "broken window fallacy".  Essentially every liberal boondoggle program will be able to have its effectiveness challenged with the broken window. 

Bastiat was a French free market economist in the 1800s who wrote very clearly on economics, making seemingly difficult concepts easy to understand for the layman.  One of his greatest contributions to this lay education is the broken window fallacy.  Imagine this situation.  A boy throws a rock through the window of a bakery.  The window breaks, causing the baker to have to pay a glazier to replace his window.  This destruction, thus, has stimulated the business of the glazier, providing a positive stimulus to the economy, right?  After all, the glazier will then spend the fee he gained by fixing the window into aspects of his business, or for his home, or on gifts for his wife and children, etc.  A ripple effect of productivity will ensue, as businesses throughout the economy benefit from the broken window.  Right?

Not quite.  This seems fishy to the common sense reader, as it should.  How, after all, can destroying something useful stimulate the economy?  The answer is, it can't.  If the boy had never broken the window, the baker would have the window still, and still would have spent the money on other things.  Investing in his business, on his home, or on gifts for his wife and children, etc.  Destruction of wealth does not, and can not, result in a gain in productivity.

Unfortunately, most of our government policies rely on the broken window mindset; that destruction and theft can stimulate.  Take, for instance, the most egregious broken window policy, Cash for Clunkers, in which government literally paid people to destroy useful objects.  And this was supposed to be a stimulus for America!  On a more subtle level, though, ever government spending policy is a broken window policy in a way.  Taxes must pay for all of the programs we use, which destroys our ability to invest those funds into our homes, our businesses, etc.  All of these programs have the premise that we are dumb and politicians are smarter than we are.  When the president says he's going to spend our money on things that "work", he should also say, "unlike you morons".  They can break our "windows", and spend our money better than we can. 

This would be fine in terms of productivity if they actually could spend our money better than we can.  Debunking that assumption will be the subject of the next Moorenado.


  1. It all basically boils down to this: the government has no money; every dollar the government spends, loans out, etc. comes from us. so the irony behind cash for clunkers, for instance, is the government literally loaned our own money back to us in exchange for us destroying cars that, in most cases, probably worked fine, for us to buy cars that we couldn't afford in the first place.

  2. Excuse me for responding so late to this post and therefore entering a conversation long after it's finished. I should have been more attentive before.
    All the same, I was just wondering, I thought taxes were meant to be a way to pay the government for a public service: Taking Care of its People (through military protection, social security, welfare, and whatnot)? Granted, they don't always do this, and when they do, it does seem they assume that they're "smarter than the average bear" but... I'm not sure paying taxes is the same thing as breaking a window.
    Could you clarify?