Dakota Beacon

The seen versus the unseen--. This is the essence of the sleight-of-hand game played by politicians and policy makers with constituents at all levels of government. That’s what TARP, the “stimulus,” the bailouts and the handouts are all about.

The “Broken Window Fallacy” illustrates the error of government economic planning. Politicians and bureaucrats capitalize on this fallacy -- as well as public economic illiteracy -- every day to their own advantage.

Frederic Bastiat (1801-1850) was a remarkable French economic journalist. He is credited with writing a parable known as the “Broken Window Fallacy.” In it he concisely lays out what distinguishes good economics from bad economics. “The bad economist confines himself to visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

What is the “Broken Window Fallacy?” The parable begins when a hoodlum throws a brick through a shopkeeper’s window. A crowd gathers to inspect the damage and they sympathize with the shopkeeper.

Soon, however, someone in the crowd suggests that the youth who threw the brick really wasn’t guilty of vandalism. In fact, he might be regarded as a champion of sorts. Some speak of him as creating economic opportunity for everyone in town. Repairing the broken window creates work for the glazier who would then buy bread from the baker who, in turn, would buy shoes from the cobbler, and on it goes.

In effect, the same money goes around and around, but no new wealth is created. This is key.

Bastiat’s parable displays the seen effects of repairing the broken window. What is not seen is how the shopkeeper might have otherwise used his money had the hoodlum not broken the window. He might have used his money to employ a tailor to sew a new suit.

Breaking the window resulted in two unseen effects. First, the broken window forced a transfer of employment from the tailor to the glazier. Second, and more significant, it reduced the shopkeeper’s wealth and freedom of choice. If the hoodlum had not broken the window, the shopkeeper would own both his window and a new suit.

The shopkeeper’s loss may be the glazier’s gain, but it was also the tailor’s loss. What was not seen was the new suit, because it was never sewn.

The “Broken Window Fallacy” is the most persistent error in economic thinking and continues under hundreds of guises. It is perpetrated everyday by TV commentators, pundits, newspaper columnists and editorial writers, city councils and educators. They see the immediate effects of an economic policy but are not forward thinking or prescient enough to anticipate the unseen effects.

Little wonder that unintended consequences manifest themselves from the unseen effects. Even less is the wonder that people fall prey to the rhetoric of well-meaning policy makers or charlatan politicians. Many people are gullible enough to fall for the political promises proposed to solve economic problems. They’re quick to buy into the desired goals without seeing the forthcoming consequences.

When the government takes the people’s wealth in the form of taxes and announces good intentions for its use, the public ends up paying for things they would never purchase for themselves as consumers. Under government policy, personal wealth shrinks, discretionary spending diminishes, and opportunity, liberty and prosperity suffer.

A little self-education can go a long way toward remedying the situation. Articles by Thomas Sowell, Walter E. Williams and other columnists appearing in newspapers offer a good thumbnail sketch for economic understanding. Books by these two writers and by Friedrich Hayek (“The Road to Serfdom“), Milton Friedman (“Free to Choose“), Henry Hazlitt (“Economics in One Lesson“), Ludwig von Mises (“Human Action“) among others are available, readable and edifying.

It is possible to push back the frontiers of economic illiteracy and gullibility.

Dennis M. Patrick can be contacted at P. O. Box 337, Stanley, ND 58784 or (JavaScript must be enabled to view this email address).