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Saturday, March 12, 2011

Broken Windows

Some people never learn:

HONOLULU (HawaiiNewsNow) - The natural disaster of a tsunami could actually provide a temporary boost to the global economy.

Larry Summers, former director of President Obama's economic council and a former head of the World Bank, said rebuilding could temporarily boost the Japanese economy.

I refer you to Frederic Bastiat, French economist and all around awesome guy, for a small lesson on something called "The Broken Window Parable" (not to be confused with the theory):

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

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.

When we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."

I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen. The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying - What would become of the glaziers, if nobody ever broke windows?

(As an aside, broken windows should not be confused as a precursor to creative destruction, either.)
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  1. Breaking News Alert: Larry Summers credits widespread firebombing of Japanese cities and atomic bombing devastation of Hiroshima and Nagasaki with subsequent Japanese post-war economic boom.

    Amazing how not only mobilizing for war is credited for stimulating an economy (e.g., in the case of the U.S.) but the opposite, being on the receiving end of devastation, has the same effect.

    To misquote Homer Simpson's quote about beer:

    War ... is there anything it can't do?

  2. Larry would get along great with Jean-Baptiste Emanuel Zorg:


  3. In view of Summers' track record, this willful cluelessness is astonishing.

    Then again, look at the willful cluelessness of the US ruling class. Has a political elite ever brought a nation down so far so fast from so high?

  4. Is that theory related to the one about broken windows and crime?

  5. Mr. Jacobson,

    Would like to thank you for the posting. Reading that passage was like a time warp for me. My Management Accounting professor back in the early '90's quoted that passage as the opening for his class. He only omitted the close as it was our first case review. Thanks.

  6. There is a great little video on this very principle. Link:


    Here is another one that is pretty good, too:


  7. And of course we should consider the possibilty that a customer did not want to purchase something from a shoddy shop with a broken window.

  8. I love that Bastiat parable.

    Years ago, during my misspent youth, I had a friend who would justify littering, and other scofflaw activities, ala the careless shopkeeper's son.

    "I create jobs," he'd say.

    Sadly, the wisdom of Bastiat's parable was lost on him.

  9. I posted over at Volokh that Japan presents a triple play for leftist doctrine.

    Stimulus for people like Summers. And the global warming crowd have started to blame AGW for the earthquake. And the no nukes crowd are preparing their briefs to prevent the construction of any nuclear power plant in the U.S.

    They believe Scarlett got rich from the rebuilding of Atlanta in Gone With The Wind. The Day After Tomorrow gives them all they need to know about global warming/climate change. And Godzilla movies and The China Syndrome provide all the evidence they need to stop the nukes.

    And somewhere in Hollywood a screenwriter is finishing his script about Hurricane Katrina and are putting a nuclear power plant in the French Quarter. It's Oscar gold I tell ya!

  10. Larry Summers shows just a bit of the ignorance of our economic and political leaders. They have their heads buried in computer models which happen to support their give-away policies.

    Fred: How many jobs have we created?
    CBO: Just a second (runs computer program model) 2,343,458 jobs.
    Fred: Did this scan a detailed database of collected information?
    CBO: No. It always says that.

    CBO Creates Jobs On Paper
    03/17/10 - Cato@Liberty - Daniel J. Mitchell [edited]:
    === ===
    Doug Elmendorf is Director of the Congressional Budget Office (CBO). He basically agrees with me, that their employment model simply spits out pre-determined numbers, regardless of what happens in the real economy. The CBO recently estimated that so-called stimulus spending generated jobs and growth.

    Someone asked if the CBO model would be unable to detect whether the stimulus failed. After hemming, hawing, and a follow-up question, he confessed "that’s right".

    (See this at 39:00 on the C-Span video at the link.)
    === ===

    AMG: Our economic future is being analyzed by CBO models that are entirely theoretical and are not compared to the reality that they are supposed to predict. It is the CBO that "scores" Congressional legislation, telling us what it will cost and how much we will save by "reducing the deficit".

    Does this inspire in you a warm feeling of trust?