A shopkeeper, upon arriving at work one morning, found that his front window had been broken by nighttime vandals. The townspeople rallied around him, condemning the crime and lamenting the sunken state of public morality. Morning turned into afternoon, the glazier arrived and normalcy returned to Main Street.
Slowly, however, public sentiment began to turn. A quiet murmur spread amongst the burghers: What if the broken window had been a good thing? If not for vandalism, the glazier wouldn’t be so busy. Money earned by the glassman would be spread throughout the community – to the butcher, the cobbler, the barber and the haberdasher. From strewn glass shards would spring a redistribution of the shopkeeper’s wealth. The window-smashing had unlocked capital and proven beneficial for the larger community (stolen from a Frederic Bastiat’s essay written over a hundred years ago).
This is the Parable of the Broken Window – or rather, if its truthful name is to be used, the
fallacy. While it is true that the shopkeeper’s money would flow through the glazier and into the town’s economy, what’s often forgotten is that the shopkeeper’s regular purchasing patterns would be disrupted.
Perhaps he won’t buy groceries this week because of the unexpected and unnecessary expense foisted upon him by the broken window. Perhaps he’s already teetering on the brink of bankruptcy and the glazier’s fees push him over the edge. All the entities relying on his business would the have to do-without. A momentary injection of money could sully the community’s longterm prospects.
At play here is a system-level lesson: The destruction of value can bring short-term gains but is
ultimately counterproductive, removing wealth-making potential from those who need it most.
Does this situation sound familiar?
The Cash for Clunkers program currently spurring U.S. vehicle sales has at its roots the same sort of temporary solutioneering that holds window smashing as a legitimate form of economic stimulus. The immediate effects are visible, but the unintended side effects – the fallout – will only be felt in the months and years to come. What of the masses dependent on a stocked ultra-low value vehicle market? What of the poor, both rural and urban, whose supply of inexpensive
vehicles has been crushed by an agenda-addled group whose quasireligious devotions blind them to the life-changing side-effects of their policies.
I am the biggest supporter in Canada of an inspection-driven scrappage program, but I struggle to understand the true efficacy of a C4C-style incentive program. Why pay someone $4,500 to scrap a vehicle that was going to come off the road anyway in a few months? If it wasn’t going to be scrapped for a few years, then why destroy a product that still has value? I worry about the unintended effects of the current program.