Say Anything Blog

It’s the broken window fallacy on a grand scale:

Obama says he will “transform the challenge of global climate change into an opportunity to create 5 million new green jobs,” which he likens to the economic activity triggered by the personal computer. This rosy way of looking at global warming is a variation on the “broken window” fallacy dissected by the classical liberal economist Frederic Bastiat, according to which the loss caused by smashing a window is offset by the employment it gives the glazier.

By the same logic, Obama should view war, crime, and hurricanes as opportunities to create jobs. While all three generate economic activity, we’d be better off if the resources spent on bombs, burglar alarms, and reconstruction work were available for other purposes, instead of being used to inflict, prevent, or recover from losses.

Likewise, overhauling manufacturing, transportation, and power production to reduce the emission of carbon dioxide may or may not be justified, but the cost of doing so is properly viewed as a drag on the economy, not a boost to it. At the risk of stating the obvious, we’d be better off if we didn’t have to worry about, and use resources to minimize, climate change.

The government can’t create jobs by spending tax dollars because, by definition, those tax dollars must first be taken out of the economy before they can be spent.  Which is a phenomena Bastiat illustrated perfectly in his parable of the broken window.  In that story some people in a village claim that a shop keeper’s broken window is going to stimulate their local economy because it will force said shop keeper to spend money on glass, a repairman, etc.

But the truth is that the money spent on those things is money that would likely have been spent elsewhere in the economy.  On things more beneficial, overall, to both the economy and the shop keep.

At most, you could argue that the money taken out of the economy to fix the shop keeper’s window had a neutral effect on the economy in that it would have been spent anyway.  But more than likely the overall impact is probably negative, because what did the shop keep get for his money?  A new asset?  No.  Just one restored to its previous value.

The same with Obama’s spending.  It’s not going to create any wealth.  It may employ people, but at what expense?  Keeping taxes high, and probably making them higher, on the people who really do create wealth in our economy?  The business owners and the average taxpayers whose activities employ people and create profits and wealth every single day?

That’s a pretty stupid economic plan if you ask me.