My Thoughts
Ran across mention of a couple of economic fallacies this morning. Given that today is “V-Day” for some reason it seemed serendipitous, since the economy is very much on the ballot—capitalism vs. socialism, free market vs. welfare state. Saw a video of the leftist presidential pretender spewing forth the tired canard of equality of outcome vs. equality of opportunity. Same old stuff, different day in the USSR or the CCP.
As Thomas Sowell suggested some years ago, to tell a tale start at the beginning not in the middle[1] and ignore the “once upon a time.”
The 19th-century French economist Frederic Bastiat told a tale in which a boy breaks a window. The townspeople looking on decide that the boy has actually done the community a service because his father will have to pay the town’s glazier to replace the broken pane. The glazier will then spend the extra money on something else, jump-starting the local economy. The onlookers come to believe that breaking windows stimulates the economy. As Robert Higgs noted back in early 2014, “In recent years, many people, at least in certain circles, have become familiar with with Bastiat’s broken-window fallacy and have come to recognize that Keynesian macroeconomic policy amounts to little more than this fallacy writ large.” Bastiat pointed out that further analysis exposes the fallacy. By forcing his father to pay for a window, the boy has reduced his father’s disposable income. His father will not be able to purchase new shoes or some other luxury good. Thus, the broken window might help the glazier, but at the same time, it robs other industries and reduces the amount spent on other goods. Bastiat also noted that the townspeople should have regarded the broken window as a loss of some of the town’s real value. Moreover, replacing something that has already been purchased represents a maintenance cost, not a purchase of new goods, and maintenance doesn’t stimulate production. In short, Bastiat suggested that destruction doesn’t pay in an economic sense. The broken window fallacy also demonstrates the faulty conclusions of the onlookers. In considering the lucky glazier who will make some money repairing the window, they have forgotten about others who will be adversely affected, such as the shoemaker who has lost a sale. In this sense, the fallacy comes from making a decision by looking only at the parties directly involved in the short term. Rather, Bastiat argues, we must look at all of those whose businesses will be impacted by the broken window.
Robert Higgs further noted, “Perhaps even more important is what we might call the unbroken-leg fallacy.” This fallacy is very much in play, especially in Nevada, but certainly throughout the country as a whole, with the continued lockdowns and severe economic closures wrought by liberal/left-wing governors and politicians.
This is the presumption, which underlies all sorts of state intervention, both macroeconomic and microeconomic, in the market system, that the participants in markets are perfectly capable of acting more productively but, owing to various “market failures,” are not doing so on their own and require state action to repair the situation. The fallacy is that this reasoning completely ignores the countless ways in which the state’s own intrusions and engagements in the economic system in effect “break the legs” of private-sector actors by distorting prices (including interest rates), penalizing productive actions, and subsidizing destructive actions. Having invaded the economic order like the proverbial bull in a China shop, the state’s kingpins, functionaries, and intellectual bootlickers then have the chutzpah to blame “market failures” for the wreckage they themselves have created — an ever-changing hodgepodge of bad incentives, misdirected state efforts, and ominous fears about further unsettling state actions to come.
Owing to the built-in feedback that occurs in a genuinely free, profit-and-loss-based market system, people do not systematically err and fail in their multifaceted efforts to coordinate their own economic activities — unless, that is, the state runs amok, breaking their legs willy-nilly and crippling the operation of the price system. Economic analysis and policy-making that disregard this reality rest on a fallacious foundation.[2]
Broken windows and broken legs for some odd reason are not all that appealing, at least to me. Something to think about as you stand in line with casts on today. Wake up America.
Just my thoughts for a Tuesday, for what it is worth.
[1] Milton Friedman & Thomas Sowell vs. A Welfare Administrator,
youtube.com/watch?v=WIl_FtuDSPs.
[2] Robert Higgs, The Unbroken-Leg Fallacy, Mises Institute, April 29, 2014,
mises.org/wire/unbroken-leg-fallacy.
