TLDR version: Shorter Bastiat
So, a bit of a while ago I got engaged in a bit of a flame war at Crooked Timber. About broken windows. It's gotten me thinking and reading and although I really don't have anything new to add to what I said at CT, I think it might make sense to put it all down in a single post. Well, at least it will make moar sense to me - which is what this blog is here for anyways.
First the beackground - the broken window fallacy. From Claude Frédéric Bastiat's essay That Which is Seen, and That Which is Not Seen. I'm going to be pretty harsh on pauvre Bastiat - so I want to caveat up front. Dude is from early 19th century France. Those were different times, Revolutionarily different. Please bear that in mind.
Here's the story: There's this shopkeeper, let's call her Alice. Alice's son, Alison, breaks one of the shop's windows. Alice hires a glazier, Bob, to repair the window. The price is six francs (for context, the franc at the time was a physical standard amount of gold. ~0.29 g. Meaning six francs is approximately a fifth of a troy ounce or about $350). Bob fixes the window, collects his three and a half benjamins and in rubs his hands in glee.
So, from an economics perspective, what's happened? Well, Bob did six francs of work that he otherwise would not have done. And that's it. The broken window is repaired and thus the community as a whole is no better or worse off. Six francs has been redistributed from Alice to Bob and Alison is probs in big trouble with his mom (whom I totally did).
But no. Here's where Bastiat comes in and says, oho - while the overall wealth of the community appears to be unchanged, you are not factoring in what is unseen. Which apparently is Alice's spending six francs on new shoes (ladies and their obsession with buying shoes - amirite!). Charlie, who is teh village cobbler, is now out the six francs that he would have been plus had Alice not had to shell out all them phat francs to Bob.
Which is, of course, bullshit. The way I phrased it in teh original dust-up was And Bob wears no shoes?
Money is money, francs are francs. Cold hard cash is teh most frungible of assets - even moar so than diamonds, or so my fence tells me. Does it matter if teh six francs are spent by Alice or spent by Bob? No, it does not (although this misconception is an interesting one to unpack as well - possibly in a later post). So Bastiat's poor unseen Charlie is getting his six francs after all, or maybe not Charlie since it's only teh chicks with teh thing about shoes. Let's say that Bob blows the cash on a used computer from some guy named Dave. Bastiat's "not seen" Charlie is exactly balanced out by Dave whom Bastiat doesn't seem to see.
There was a big discussion about hoarding. Various people maintained that teh broken window fallacy does not require Bob to be a hoarder. This is untrue. The conclusion of the Broken Windows section:
The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them,Clearly for the little parable to have any meaning, only money spent by Alice counts. Bastiat has raised teh unseen potential use by Alice of the cost of the window - but studiously ignores teh possibility of increased spending by Bob due to his coming into new money. Furthermore, the cash spent by Alice is cash that she had on hand - and in the story, Bob is otherwise unemployed. Which of the two is more likely to hoard cash? Later in that same essay, Bastiat waxes poetical on teh virtue of hoarding - so there's also that.
James B.Alice, represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazierBob, shows us the producer, whose trade is encouraged by the accident. The third is the shoemakerCharlie (or some other tradesman but def not that Dave guy), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction.
Anyways, teh whole point of teh parable apparently, is to show that Bastiat is a huge hypocrite. The parable is a very special form of special pleading where he invents an entire extra set of rules, which don't actually change the outcome unless they are selectively applied. It's like playing a baseball game and being told that reaching third base now also counts as a run. And then being told that this special rule only applies in the bottom half of the inning. Without tilting teh playing field entirely in his favour, teh best Bastiat actually manages to prove is that in a system with excess capacity/high unemployment - the useless destruction of things causes no net loss to society. Because there is available unused capacity to replace them.
But wait, what about that bit about redistribution? At the very least doesn't Bastiat have an argument from moral grounds about how even if you pay Paul, robbing Peter is still Dentistry? Well, yes and no. In the original story, teh window is broken by accident by Alison. Or maybe not accident but possibly as revenge for being given a girl's name. Or maybe while he was practicing in order to succesfully punch a shark in teh face. Whatever Alison's motives, there appears to be no lesson in morals available. Next Bastiat proposes that Bob hires a bunch of thugs to go break windows for teh sake of drumming up business. Well, that certainly seems immoral. So it appears that the issue of the moral rightness with respect to redistribution hinges upon context. Meaning that teh parable is a pretty weak one in terms of being some sort of archetype to base analogies on.
But base analogies Bastiat does. Many of them. He projects the lessons of this story, lessons which only follow if you are willfully ignorant of teh inherent contradictions, to a host of other things.
And each time the formulation of teh analogy goes - Alice is teh consumer or teh taxpayer or teh polity at large. Alice is kinda like Christine O'Donnell, she's you. Bob is any public spending be it a standing army, spending on the arts, trade restrictions and tariffs, just about everything. Charlie is everything good and proper. All that we want out of society. Everything that is right and just. Bastiat doesn't recognize Dave, probs because he's on vacation in Europa (not Europe, since that's where Bastiat
So, you're Alice. Alison, who I suppose is no longer your son but rather some sort of OMG! SOSHULASM! inflicted upon you. You are at some sort of loss due to teh effects of SOSHULASM. Bastiat's true nemesis, whom he calls Monsieur Industriel (firstname Strawman) says to not worry since teh loss is totes balanced out because teh funds go to Bob who provides you with something in exchange. i.e. Despite being out your precious tax monies, here's a functioning civil society for your troubles. But Bastiat says - oho, that's all well and good, but what of poor Charlie! You kept Charlie out of teh picture! Therefore it is a net loss to society. Not just to Alice but to society as a whole.
It ain't. It never is in any of the comparisons he makes. Because all of the balances revolve around what Alice is out compared to what she would have had in an otherwise perfect world and none of them consider Bob at all. Not only that, he is saying that this analysis is the basis on which policy decisions which affect all of scoiety, Bob and vacationing Dave included. And since you're Alice - it's like some form of meta ur-pandering. So credit for that, Bastiat was already trying to buy your vote in teh earliest days of modern democracy.
Here's teh kicker. That's not teh worst error Bastiat makes. There is another "not seen" thing which Bastiat completely igmores. The breaking of the window itself. He calls it the useless destruction of things, but "useless" - as in without any value whatsoever - that's a hard bar to meet.
The lost window may have been previously faulty in some way. Somehow inapprorpiate for teh application. Knowledge which was not available when teh window was first installed means that teh new window has teh potential to be better than teh old one. Perhaps a window is a bad example of these things - but teh point was to set up a basis for analogies. There are all sorts of things that one wishes they could change after they were installed. Bastiat also offhandedly cites the example of a fire burning down Paris. Well that is a bit extreme and teh cultural loss is immeasurable, but on a smaller scale, a single house burning down provides teh opportunity to rebuild it, this time meeting standards for electical wiring. A moar recent example is teh LulzSec hacking of PSN. Destroyed Sony's entire security system (twice). Compromised tens of thousands of credit card numbers. Doesn't that count as "useless destruction"? Well no. Sony's "security" was godawfully bad. There is definite value - especially to Sony - in knowing that their security seriously needed beefing up. It would be like if Alice's window popped itself open while no one was looking and started throwing shit out into teh streets. Breaking teh window was a good thing. Breaking Sony's "security" was also a good thing. Because it was done for teh lulz and not to bone thousands of people whose only mistake was to think Sony would be able to keep their credit card info safe. People whom Sony had already put at risk for that very boning.
On an even moar obvious basis - technology doesn't stand still. Again, teh window ain't teh best example since window technology is already pretty mature - but say one of your buddies, for example Alison, finally manages to break your Nokia 5110 (probs with a sledgehammer). ALISON HAS DONE YOU A FAVOUR. You should be thanking her.
Bastiat is not only unconcerned with what happens to teh money after Alice spends it - he is concerned only with money. In the original story, Bob is an unemployed skilled worker. The longer he is unemployed, the rustier he gets and teh moar out of touch with current industry practices he is. The opportunity to exercise his trade has value to society in and of itself. And in teh current context of the long term unemployment epidemic in the US - it's not a small point (although I concede that it's not something that 19th century frenchmen should have been able to predict).
That's the real unseen that Bastiat glazes over. In the example of tariffs and what he calls "restrictions", Bastiat assigns a value of nurturing local homegrown industry at zero. According to Bastiat, there is apparently no value in having domestic sources of goods when they can be procured on teh global market. Kinda funny considering the state of international relations in Europe during his time. I mean, Prussia made such fine weaponry, why bother with a domestic arms industry when you can just purchase said items from your neighbour?
The usual bugaboo that is raised as teh broken window is make-work programs. Why implement make-work programs when you could just lower taxes and BOOM MAGIC FAIRY JOB CREATION? Not to be too asshole-ish about it, but it's right there in teh name. To Make Work. Making work isn't a by-product of Make Work programs. As I mentioned previously, long-term unemployment - not good for society. The whole idea is to keep teh long term unemployed from slipping into teh long term unemployable. But that's something Bastiat doesn't see. Because he got his job at 17 through nepotism and then inherited a fat ass estate at 25 making him fabulously wealthy and never needing to do sweet fuck all except complain about taxes for teh rest of his natural life.