For those unfortunate souls amongst the few reading this who are unfamiliar with Conan Doyle’s Sherlock Holmes series, the dog that didn’t bark makes its appearance in the story Silver Blaze. Holmes is being questioned by Inspector Gregory, the official investigator on the scene, who questions the departing Holmes as follows:
”Is there any point to which you would wish to draw my attention?”
”To the curious incident of the dog in the night-time.”
”The dog did nothing in the night-time.”
”That was the curious incident,” remarked Sherlock Holmes
Sometimes what does not happen is as or more meaningful than what does. And that brings me to the Broken Window Fallacy. As explained by Wikipedia it is:
The parable describes a shopkeeper whose window is broken by a little boy. Everyone sympathizes with the man whose window was broken, but pretty soon they start to suggest that the broken window makes work for the glazier, who will then buy bread, benefiting the baker, who will then buy shoes, benefiting the cobbler, etc. Finally, the onlookers conclude that the little boy was not guilty of vandalism; instead he was a public benefactor, creating economic benefits for everyone in town.
Bastiat’s original parable of the broken window went like this:
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane 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.
Fallacy of the argument
The fallacy of the onlookers’ argument is that they considered only the benefits of purchasing a new window, but they ignored the cost to the shopkeeper. As the shopkeeper was forced to spend his money on a new window, he could not spend it on something else. For example, the shopkeeper might have preferred to spend the money on bread and shoes for himself (thus enriching the baker and cobbler), but now cannot because he must fix his window.
Thus, the child did not bring any net benefit to the town. Instead, he made the town poorer by at least the value of one window, if not more. His actions benefited the glazier, but at the expense not only of the shopkeeper, but the baker and cobbler as well.
Little o and his band of merry Keynesian morons apparently believe that the more windows they break the better off we will be, thus “cash for clunkers” as their latest effort to create good by doing bad. To quote portions of Caroline Baum’s article at Bloomberg.com:
Was the program to induce drivers to turn in old gas-guzzlers for a more fuel-efficient vehicle a success? That depends on how you define success.
Consumers got a “discount,” automakers sold more cars and trucks last week than they would have, and all that “stimulus” – spending begets income begets spending – has to be good for the economy, right?
With success like that, why limit the rebates to $4,500? Why not give everyone a $10,000 or $20,000 rebate to turn in an old clunker? And why stop at the cars in the garage when you could get rid of a garage full of accumulated junk, with the government providing rebates to households for unloading what they’ve been meaning to get rid of for years?
A reductio ad absurdum, to be sure. Sometimes reducing a proposition to absurdity is the easiest way to expose its flaws.
Transferring money from taxpayers to car buyers is exactly that: a transfer. The money taken from taxpayers can’t be used for something else.
The “broken window fallacy,” as it is known, can be applied to all government spending. The $787 billion fiscal stimulus enacted in February transfers money from taxpayers to the government to allocate as it sees fit. The effect of the government’s expenditures shows up as growth in gross domestic product. Auto manufacturers produce more cars to meet the juiced demand, adding to GDP. This is what’s seen.
What is unseen is what would have been produced by the private sector had the government not confiscated future revenue via taxation.
Just think of all those broken windows, or windshields, as the case may be.
TARP, TALF, PPIP, CLUNKERS and god knows what else already hatched or on the way from the D.C. window smashers. All of this has a real cost. All of it pulls wealth from the future to try and cover up the government’s sins of the past. Every loan taken by the government, every bond or bill sold, is an advance against future tax revenue as both the principal and the interest must be repaid and every nickel spent on repayment is our descendants paying for our excesses with money unavailable for their own needs. Herbert Hoover had it right: “Blessed are the young for they shall inherit the national debt.”
You can find lots of serious analysts – none of whom work for the government – who have no doubt at all that the true national debt can and never will be repaid in constant dollars; only the “invisible” tax of inflation will allow sufficiently depreciated dollars to permit repayment in paper (or electrons) notwithstanding the purchasing power thereof. If you’re dumb enough to lend the insatiable gobblers of money in D.C. a billion dollars then you have no real complaint when the value of the dollars you’re repaid with is 25% or so, to pick a number, of the dollars you loaned. Silly you. But where does the country go when all the chickens come home to roost – and come they will. This insane and bipartisan stupidity can not and therefore will not have a happy ending. The o hounds have already told us they do not intend to waste a crisis so where do you think they will try and take us as the crisis expands? I don’t pretend to know but I do know I won’t like it. Be prepared for the worst and anything better will be a pleasant surprise. So figure out what your own “worst” is and prepare for its arrival.
