#28 – “Government Spending Brings Jobs and Prosperity”

 

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government. See the index of the published chapters here.

#28 — “Government Spending Brings Jobs and Prosperity 

(Editor’s Note: Henry Hazlitt, 1894-1993, was a remarkable economist and journalist whose writings appeared widely during this lifetime, including in The Wall Street Journal, Newsweek, The New York Times and The Freeman. He served for many years as a trustee of the Foundation for Economic Education. His inspiration for this essay was the French economist Frederic Bastiat. The most notable of Hazlitt’s many books was the popular “Economics in One Lesson,” from which this essay is adapted, and which is available for free via audio or download here: http://fee.org/library/detail/economics-in-one-lesson-2).

            A young hoodlum 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 dissatisfaction at the gaping hole in the window and the shattered glass all 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? Three hundred 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 $300 more to spend with other merchants, and these in turn will have $300 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 is to learn of a death. But the shopkeeper will be out $300 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 $300 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 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. The see only what is immediately visible to the eye.

So we have finished with the broken window, an elementary fallacy. Anybody, one would think, would be able to avoid it after a few moments’ thought. Yet the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by chambers of commerce, by labor union leaders, by editorial writers and newspaper columnists and radio commentators, by learned statisticians using the most refined techniques, by professors of economics in our best universities. In their various ways they all dilate upon the advantages of destruction or they declare that the mere act of government spending “stimulates” without ever asking where the money must come from.

Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. (Editor’s Note: “progressive” economists like Paul Krugman see no problem in suggesting the economy would be stimulated if your house is blown up but has so far has not done his part to goose the economy by blowing up his own.)

They see “miracles of production” which require a war to achieve. And they see a world made prosperous by an enormous “accumulated” or “pent-up” demand. After World War II in Europe, they joyously counted the houses—the whole cities—that “had to be replaced.” In America they counted the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They brought together formidable totals.

It was merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition.

 
Summary
  • The broken-window fallacy essentially calls us to be thorough in our thinking. It’s not enough to simply see the immediate or what strikes the eye. We must also consider the long-run effects of an act or policy on all people.
  • When government “spending” seems to stimulate, it’s because we’re not seeing its redistributive nature. If government spends more, then there is precisely that much less spending done by those from whom the money is taken. If the government spends more and borrows to pay for it instead of raising taxes, then it’s today’s capital market that is smaller precisely to the extent government spending is bigger.
  • For further information, see:

“7 Fallacies of Economics” by Lawrence W. Reed:http://tinyurl.com/lj95ndw

“The Myth of U.S. Prosperity During World War II” by Robert Higgs:http://tinyurl.com/kpshgzu

“A Lot of Economics in One Lesson” by Sandy Ikeda:http://tinyurl.com/pstndlf

“America’s Economics Knowledge Deficit” by Lawrence W. Reed:http://tinyurl.com/plnhc5j

Further Reading

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