Frederic Bastiat’s "broken window fallacy" is an economic parable explaining how destroying wealth cannot create wealth and how policies that favor one industry will hurt another. A broken window, for example, may give the glassmaker more business, but the shopkeeper who must fix his window uses money for the new window that he would otherwise use to buy something else--like a new suit. The shopkeeper only has the window (that he paid for twice) instead of a window and a new suit. Henry Hazlitt discusses this fallacy extensively in his Economics in One Lesson.
You might think this fallacy would be easy to avoid. However, as recently as June 11th in Pennsylvania lawmakers were being caught falling prey to Broken Window thinking. The topic here is green jobs.
Jobs in "green" and alternative energy fields are themselves great things—but sometimes they’re like replacing a window with more expensive glass and only benefit the glass industry. Subsidizing green energy specialists means they get work just as the glassmaker does, but overall our society is worse off. Why? Because government support is being given to an industry that cannot sustain itself. Katrina Currie, research associate at the Commonwealth Foundation stated the problem clearly before the PA House Republican Policy Committee by saying that “when government attempts to pick winners and losers—by identifying which industries are ‘green’ or ‘good’ and subsidizing them at taxpayers’ expense, mandating their use, and even punishing their competitors with costly regulations—it hinders our overall economy.”
In Pennsylvania $2 billion in alternative energy subsidies has been spent since 1999, yet the state sits in sixth place for total jobs lost. European studies cited by the Commonwealth Foundation show that for every green job created, 2.2-4.8 jobs are lost. Thus, we have more "green" jobs, but other people losing their jobs results in a net loss of jobs. As Commonwealth’s testimony says, “Jobs created in industries that depend on government assistance are not sustainable, will not stimulate the economy, and will not result in net job growth.” We can’t afford that now, nor can we afford paying $2 billion (at a state level) to keep an inefficient market afloat.
Yes, we must do what we can to attempt to reduce the environmental harm we are inflicting on our planet, but we must be cautious when we let emotions replace sound economics. We must be sure that our green laws are the best policies for all groups.
Every concerned voter should approach the economic analyses of politicians with a wary eye. Henry Hazlitt, in his book Economics in One Lesson, states that one must look at the long term as well as the short term effects of an act or policy, and one must look at the consequences of an act or policy on every group.
Too often the public is given different forecasts for the same issue. What can be done to sort through these conflicting opinions? Hazlitt suggests taking a step back from the contradictions that arise with special-interest analyses and review all the interests involved.
Too often, nonvisible groups are forgotten, sometimes on purpose, and sometimes because people just don’t explore every side of an issue. The visible groups are the interests being helped by a policy, and these are the people to whom the focus and attention is given. But Hazlitt reminds us that improving one group's conditions must come at the expense of groups in the shadows, and so one must probe the shadows.
An understanding of efficiency is crucial to understanding Hazlitt’s principle. The goal of our economy should be to make our production as efficient as possible because both consumers and producers benefit from the maximization of productivity.
Government subsidies are passed without considering the forgotten taxpayer or the established worker in an already successful industry. Hazlitt uses many such examples to point out the repeated fallacy of ignoring a group when analyzing the economic effects of an action on productivity and how it hurts all of society to favor only special groups.
