Dakota Beacon

This morning, Governor Jack Dalrymple appeared on CNBC's Squak Box.  On worldwide cable TV he more than implied that the flooding problems that North Dakota is having would have some sort of some sort of simulative effect to North Dakota's economy.

Host:  "What will [flooding] mean for the gdp for the state this year?" the host asks.

Governor Dalrymple:  "You know, it's funny a

bout disasters. You would think

 it would have a big impact on GDP, but actually, as you know, it stimulates like constru

ction and recovery spending, and when all is said and done, you know, it probably will have less impact on our state economy than you might think."

This statement is a case of "The Broken Window Fallacy" and displays a clear misunderstanding of economics. 

The parable of the broken window was introduced by Frédéric Bastiat in his 1850.  Bastiat's original parable of the broken window reads as follows:

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.

Video: 20/20's John Stossel Exlains The Broken Window Fallacy

The idea that the activity caused by damage can help the economy grow is a foolish misunderstanding of basic economics.

This level of economic illiteracy is no surprise as it is pervasive within all levels of government.  North Dakota's policies of economic development over the last decade have also defied the economics explained by the Broken Window Fallacy. 

By taking money out of the economy via taxation and directing it into specific industries and businesses, the State's own policy has been to prevent those dollars from naturally growing the economy, and being used the way the earners of those dollars saw fit.

This philosophy is the basis for the belief that politicians and bureaucrats can somehow, via central government planning, better management the economy than consumers and producers can naturally.

Most people in North Dakota understand government can't spend their money better than they can.  Unfortunately too many of our leaders even here in North Dakota subscribe to the same failed theories that those in Washington still believe in.