Broken Windows and California’s Greenhouse Gas Plan

George Rebane

The jury is in on California’s syndicated columnist Thomas Elias – his acumen in economics is about a bubble out of plumb.  The man’s 4nov08 piece ‘Greenhouse gas plan might green state economy’ in the San Diego Union (repeated in today's Onion) was full of the liberal drivel that government funded make-work programs will somehow again revitalize California’s lethargic economy.  The plan he’s referring to is CARB’s Cap and Trade Scope Plan to implement AB32 recently passed by our politicians in Sacramento.  Californians will now joyously accept money from the feds to develop technologies designed to reduce greenhouse gases whether they need reducing or not.

None of these new ‘green businesses’ will be able to make it on their own.  Instead, if they follow government diktat and play like they’re real companies selling into real markets, products which are really desired by customers, then they and everyone in the pipeline will get money.  Our own little county will do its best to also belly up to the trough as part of its economic development hopes. 

Where will the money come from?  Well, a bunch of it will come from the good folks in Ohio (my favorite state for transfer payments to California), because we can’t tax ourselves enough to fund such tomfoolery.  And if you really sharpen your accounting pencil, the money will actually come out of thin air – the honorables in Washington will just print more of the stuff.  We must always remember that our country is broke as far as funding any of these marginal bamboozles like bank bailouts and carbon footprint eradication programs.

And yes, once government starts pouring money into this newest ersatz industry and guaranteeing its profits, investors will pile on because there will be enough of the new greenbacks for everyone on this gravy train.  So what’s not to like?

The problem is that this money will be created and used for something that no one needs – the whole thing is a fabrication that is much more egregious than the infamous ‘bridge to nowhere’.  You say, so what? people will have jobs.  The folly of creating jobs in this way has been pointed out by economists starting with Adam Smith, through Bastiat, Mises, Hayek, and most recently by Henry Hazlitt in his now classic Economics in One Lesson (now in its umpteenth edition since he wrote it in 1946).

Hazlitt retells Bastiat’s broken window story of a baker who suffers such a loss at the hands of a hoodlum.  The crowd of early socialists who gathers around the shattered shop window mulls the loss and concludes that it’s not all that bad since the glazier will now have $250 more business and he’ll spend the money in the economy for other needs.  They conclude that there will still be a net benefit from this act of destruction, and from a more sophisticated perspective the escaped hoodlum can be seen as a benefactor to society.

What this braintrust gathered outside the bakery does not see is the missing new $250 suit that the baker had planned to buy, which would have given work to the tailor.  The broken window did not create any new jobs, but merely displaced work from what was a propitious demand to what is now a need to replace what already was serving well.  One can substitute another voluntary expenditure for the suit, and you get the idea that such spending gets us nowhere fast, and only removes choice and true innovation from the economy.

If these greenhouse technologies for more efficient power generation, heating of houses, transportation, etc provided anyone any real benefit, then people would start these businesses on their own, and develop the necessary supporting technologies without government mandates and monies.  In lieu of this, the people in Ohio should demand instead that they get the handouts from Washington, and have this giant Ponzi game supported through the tribute paid by Californians and others across the land.

The point here is that if such policies are all it takes to revive an economy, then let’s hire people to break more windows or develop more technologies to, say, provide comfortable quarters and psychological counseling for feed animals on their way to slaughter.  That should create a lot of new jobs.  But I forgot; we already did that.

 

Comments

[Jeff Pelline]

| Comments (0)!

[Russ Steele]

George there are some more examples of the broken window economic fallacy, whereby spending money creates jobs as the expenditure multiplies throughout the economy, in David Kreutzer's Heritage Foundation Web memo, Impact of CO2 Restrictions on Employment and Income: Green Jobs or Gone Jobs?

[George Rebane]

Thanks Russ, that's a good expansion of the 'broken windows fallacy'. Another one is from the Cato Institute titled 'Highway Robbery', and there are many others when you google 'broken windows fallacy'. The amazing thing is that the left-wing politicians and, even, some economists are blind to the fallacy. It reminds me of all the mathematicians who couldn't figure out the three door Monty Hall TV show problem.