July 10, 2009

Parable of the Broken Window

I have been saying since day one on the blog that “ancient” history shows the fallacy of the things that are going on in our country and our economy in 2009. I have been (as usual) reading as much as I can get my hands on and have time for. And I ran across this little gem. Now many of you, and including me, KNOW that this “stimulus” is a farce. But check out the “parable of the broken window” I have tried to think of an analogy that fits this situation and have wanted to post this in a way that is easily explainable since we began this blog. Lo and behold, just like everything else, it has been done before. I am going to paraphrase and modernize it a bit for brevity and ease of understanding. I did not discover it at Wikipedia, but it is there.

There was a shopkeeper who had a son who helped around his father’s store. One day while cleaning he accidentally broke a window. This angered his father, the shopkeeper. He began to scold his son in front of the store patrons. Many of the patrons began to confront the shopkeeper telling him this was ok in the long run because if not for broken windows, glass repairmen would have no work. In this way the shopkeeper was providing stimulus to the local economy.

We have all heard this before. When a tornado/hurricane/ earthquake/flood hits, we say, “well that is a mixed blessing, it is a shame that all those people lost their homes, but it will be good for construction and the furniture stores and clothing stores etc.” Right? We have also heard that wars are good for our economy… It may be somewhat counterintuitive, but this is a logical fallacy that is easy to expose.

I heard my mother’s father (the one I mention in a previous post only completed 6th grade) say many times “money only spends once.” That sounds simple, right?

Let me put it this way: I run a mobile DJ service for parties and such. I heard of a good deal on some more speakers, amp, and equalizer, $300. This is a very good deal, from a guy who needs the money. I have a little fund that I maintain for equipment, it had almost $250 in it. I was preparing for an upcoming gig, getting my playlists right and everything and my amp quits working. So I have to go and buy a new amplifier. It costs almost $300. Now the website where I buy my amplifier thinks this is great, because they have made a sale. Much like the Government, I have put money into circulation, but I have not PROFITED anything. What of the forgotten man; the individual who wanted to sell me the equipment? This is not only about me and the website I buy my equipmet from. The Forgotten Man still has his merchandise to sell and most certainly does not want it, but now I am not able to buy it from him. What about me? Have I increased in capability, have I profited, have I increased my worth? No, I am at the same level as I was before. All I have done is replaced my “window” I was not able to increase my worth.

As the original parable tells us

“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”

This is the argument of “that which is seen, and that which is not seen” What we see is that he bought a window, we do not see what he was not able to do with that money. Because, when you spend money on one thing, you cannot spend it on another.

This assumes you had the money to begin with. What if it was borrowed money? Now you are actually in debt further, and unless what you bought on credit would create more worth than what you are now paying in interest you will not come out ahead. My Dad sells horses, and he says “you will never go broke taking a profit.” the converse is true as well, “you will always go broke taking a loss”

How we can believe that borrowing money to get out of debt is not insanity I do not know. Further, none of the projects that I have seen go to the actual manufacture of products, but only to repair what we already had. Roads, bridges, power plants, etc. This is all great, but it is only fixing the broken window, not buying us new equipment for our business.

When and by whom was this parable written? 1850 by a Frenchman named Frédéric Bastiat.

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