A Clunkable Moment
Proving for the umpteenth time that past failure is no deterrent to the resurrection of bad ideas, China is emulating a clunker of an idea from the Obama years. The Wall Street Journal is reporting that Xi The Pooh's fiefdom is looking to encourage consumers, via financial incentives, to trade in their old cars and major appliances. No matter that the US version was a complete failure.
Rather than repeat what the linked Foundation for Economic Education article says, I offer in its stead, The Parable Of The Broken Window (alternately titled That Which Is Seen And Not Seen) by nineteenth century French economist Frédéric Bastiat.
The relation to Cash for Clunkers is the destruction of wealth. Those old cars and appliances have value, and their premature removal from the economy makes the society poorer. What consumers spend on replacement cars cannot be spent on other goods and services, depressing the demand for those goods and services and therefore harming the producers of those goods and services. That is the “unseen” of Bastiat’s parable.
As is pretty much always the case with government "stimuli," a few win, many lose, and the sum of it all is negative.
The Parable Of The Broken Window
by Frédéric Bastiat
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation -- "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade -- that it encourages that trade to the amount of six francs -- I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen."
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. 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.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs: this is that which is seen.
If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.
Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.
In the second, where we suppose the window not to have been broken, he would have spent six francs in shoes, and would have had at the same time the enjoyment of a pair o shoes and of a window.
Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.
Whence we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end -- To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."
What will you say, Moniteur Industriel--what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?
I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen.
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, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another, under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), 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. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying-- What would become of the glaziers, if nobody ever broke windows?
Excellent point.
When the window is broken, the glazier benefits. The window owner is out the equivalent value of another item or service he might have bought with the money paid to the glazier, as is the potential provider of that other good or service. Calling it a benefit to the economy is disingenuous.
A corollary - when young, our kids would often lobby for buying the more expensive version of something. We’d point out that by buying the cheaper version, there would be $$ left over, with which to buy something else. Or, yeah, that one costs $8 more, but I have other things I’d rather spend that $8 on.
They’re adults now, and both pretty frugal.
Regarding glass workers, I recall how law enforcement busted an auto repair shop in the neighborhood. The shop had people who would late at night bust windows on cars parked on the street or take out the outside mirrors to drum up business.