The Seen and the Unseen
The Broken Window Fallacy says that destroying something (breaking a window), and then fixing it (hiring a glazier), stimulates the economy. The broken window fallacy was first described by the French economist Bastiat in 1850.
In the broken window story, a hooligan breaks the baker's window. The baker then pays a glazier to fix his window. However, this does not stimulate the economy. If the baker didn't have to pay for fixing his window, he might have bought something else (a new suit from the tailor) with the money.
The point of the broken window fallacy is that we can see what we get after the window is broken. We see the glazier getting paid.
However, we can't see what we don't get. We can't see the the tailor not being paid.
Irene's Broken Window in Hartford Township
There has been a lot of destruction of roads and property in my township. Irene broke the windows, for sure. However, it is a small town, the money has to come from somewhere, and this article in the Valley News describes the "unseen." The article describes some of the things my town had hoped to do, but will not be doing in the near future, because we have to fix the roads.
The town has decided to:
- cancel the Glory Days of the Railroad Festival this Saturday, because there is too much clean-up to be done
- cancel or postpone a bond to fix up the ice rink
- cancel or postpone a bond to fix up the town hall, a drafty and energy-inefficient Victorian edifice
After Irene, the town will see people employed on the roads, but people will not be employed to improve the municipal building or ice rink. What we don't get is visible in this case. We won't have a festival, we won't have a good ice rink, we won't have insulation in the municipal building. We will get the roads fixed, but we will be poorer (less fun, no improved town infrastructure) due to Irene's broken windows.
The "unseen" is visible in my township, and it isn't pretty.
Nuclear Decommissioning
In recent weeks, I wrote two articles on the jobs effect of nuclear decommissioning. Governor Shumlin repeatedly states that decommissioning Vermont Yankee will be a great jobs bonus and economic stimulus for the southern part of Vermont. He claimed that "several hundred" plant workers would continue to be employed for "five to six years." The Governor also said that decommissioning would "fuel the economy" of southern Vermont by a billion dollars over ten years.
Who is the Glazier in Decommissioning?
Decommissioning a working power plant is like throwing a brick through a window. It doesn't take many highly skilled people (compared to running the plant). It doesn't take much money (compared to running the plant).
The "glazier repair bill" isn't the actual decommissioning costs, though they may be part of the bill. (It depends on how you look at it.) The true repair bill is
- the cost of either new power plants (which will be needed eventually, but this is twenty years too early)
- and/or the higher cost of power bought from out of state.
Out of state power is far more likely: we are already buying nuclear power from Seabrook. New power plants and transmission lines in Vermont usually attract fierce opposition. I think we will buy from out of state. Governor Shumlin practically commutes to Canada, setting up new power deals.
Vermont will spend our money on out-of-state glaziers. We will see the money be spent, money that could have "fueled" the Windham County economy for twenty more years. What we would have spent the money for, here in Vermont...that will be unseen.
Related Information
In a recent post, I described the broken window fallacy in terms of the possible job stimulus of Hurricane Irene's destruction, or of decommissioning a nuclear plant. In both cases, destruction is not a job stimulus.
I also have two articles on decommissioning. My first article, Decommissioning Vermont Yankee: the Governor vs. The Facts, appeared in True North Reports on August 14. This showed that 80% of the plant employees would be laid off within six months to two years.
My second article was posted yesterday: Will Decommissioning Vermont Yankee Funnel a Billion Dollars into the Vermont Economy? The answer is "no." In a ten-year period, about $200 million can be expected in salaries for contract workers decommissioning the plant. If the plant is running, in ten years, $650 million in salaries are earned by plant employees. In other words, plant-related employment would drop by about two-thirds. Scarcely an economic boom!
Meredith,
ReplyDeleteKind of off-topic (forgive me), but is there no equivalent, for towns, counties, and the state, to "homeowners insurance"?
That is, if a hurricane comes through and destroys my house (or breaks the windows), and I have homeowners insurance, then insurance will pay out for my repairs, then I can use the remainder of my money to get those *other things*.
Of course, insurance does NOT apply to tearing down a building, turning off a power plant, so I hope if anyone is confused by my bringing this up, I can disabuse them of that notion.
But, doesn't the town have insurance to pay for storm/disaster damage?
Jeff.
ReplyDeleteI don't know. I am sure there is such insurance, but it would mostly insurance for this building or that building. When we send out a town snowplow, and it scrapes mud off the road, leaving a two-foot dike of mud by the side of the road, and someone has to dispose of the mud, what would insure that? Also, apparently some homeowners had hurricane insurance, but not flood insurance, so water damage from the storm is not covered.
It's going to take forever to get the money sorted out. So right now, lthere are lots of volunteer opportunities in town, and that is the main way it is being dealt with.
Broken windows is general attributable to the 'Great Southern Strategy' where the Republicans vilified the blacks and homeless to create phony fear in the whites to win electrons. It was racist in intent . The theme was if a window in a ghetto gets broken and not repaired, it is signaling to the scum of the ghettoes the good people are indifferent, thus giving the scum permission to destroy the rest of the community. The end became for the homeless (mentally ill) and blacks little infraction led to big penalties and jail.
ReplyDeletehttp://en.wikipedia.org/wiki/Broken_windows_theory
A case for breaking a window for society's interest would be in the civil rights movement and Martin Luther King. He disrupted a lot of communities and our economic with his civil actions and marches. He intentionally broke some windows, the results brought equal rights to the blacks, indeed changed the direction to the whole world.
Hello Mike
ReplyDeleteDestroying propery of an "underclass" group went on long before the South discovered this harrassment technique. Russians routinely broke windows and slit open expensive featherbeds when they raided the Jewish sections of town in the bad old days. However, nobody said the broken windows and destroyed bedding was an economic benefit to the Jewish people in town, and it sure was not meant to be a benefit.
The issue here is whether destruction, per se, is an economic benefit. It isn't. "Destruction is good for the economy" is the broken window fallacy I describe above.
Can destruction ever be good? In general, sometimes it may be necessary. You note that the civil rights movement caused unrest and some destruction. I could argue that bombing Germany was a good thing for the world, because it helped end WWII.
However, saying the bombing was an economic benefit to Germany is a fallacy--the broken window fallacy, as a matter of fact.
http://en.wikipedia.org/wiki/Economy_of_the_United_Kingdom
ReplyDeleteHmmm, depends on what time frame we are looking at.
I just think we couldn't reset the population of Germany without WW II and the bombing campaign. The bombing campaign aim was to destroy their industrial capacity and break the heart of the Nazis to end the war a quickly as possible. The end result of Germany post ww II was to rebuild their cities and infrastructures.
So you have to ask yourself what would happen without the bombing and what benefits did the bombing bring.
The GDP in Germany 1940 was 7110 (in millions of pounds sterling)
and in 2005 was 1,209,334.
As a personal note, in 1979 I got arrested and convicted of drunken driving...under threat of wrecking my career and removing my driving privilege from me. I was 26 years old. We are are out now past 30 years and I never drank another drop of booze since 1979. That police officer was the last person to ever see me drunk. As far as your broken windows in addiction psychological and mental health spheres, I can make a case that police officer had to just about destroy me in the legal system and my professional realm in order to save me. No doubt about it, that police officer was the most influential person in my life. It took me a bit a widening of a perspective in order for me to see what a good guy he was.
You know, economics isn't everything..it is all about the spirit and heart.