In his classic essay, “That Which Is Seen, and That Which Is Not Seen” (1850), the French economist Frédéric Bastiat exposed the fallacious logic of those who imagine that breaking windows spurs economic activity.
Seeing that a careless lad has broken a shopkeeper’s window, spectators offer the consolation that the six francs spent for a new pane of glass will provide business for the glazier. Generalizing, they conclude 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.
Responds Bastiat:
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. . . .
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 on shoes, and would have had at the same time the enjoyment of a pair of 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.
Let us imagine that the Parisian authorities pay no heed to such reasoning. Instead, having convinced themselves that one broken window is a boon, they conceive a scheme to multiply its good effects: They will pay shopkeepers and householders to break their own windows, in return for assignats redeemable for two francs toward the purchase of a new pane at the glazier’s.
Of course, no one will destroy a six franc window in return for two francs, but let’s suppose that Paris has a thriving trade in used glass and that it is customary, as windows age, to trade them in at the glazier’s for a new and better pane. If the trade-in value of a used window is, say, 1½ francs, everyone in the city who was planning to replace his old windows will eagerly take the two franc offer.
So certain Parisian bourgeoisie are better off, with new windows and 50 centimes extra in their wallets. Others are less well off, because their taxes have paid for the assignats and they themselves have received nothing in return. And what about those less prosperous souls who cannot afford to spend six francs on a window? Before, the glazier would sell for 2½ francs the pane that cost him 1½. Now that pane is destroyed. The workingman will have to scrape together six francs for his window, forgoing other necessities, or will keep the weather out with oiled paper.
Furthermore, the program is of no use to a poor man who already owns a window. The government has imposed two inflexible rules: The assignats must be spent on a new window costing six francs, not on a slightly better used window. And no one may buy a used window from another in order to gain the assignats for breaking it. Thus Mme. Pauvre may not sell a pane to M. Riche for one franc, after which he will break it, get two francs and buy a new one.
Substitute cars for glass, and you have an exact description of the “Cash-for-Clunkers” program that ran through a billion dollars in four days and was voted another two billion this afternoon by the House of Representatives. Of course, it is popular with car dealers and their more affluent customers, but for the economy as a whole, it is as wasteful as a hurricane.
If it were this easy to spur economic growth, why shouldn’t the government offer money for the destruction of other goods: clothing, furniture, appliances, houses? In Bastiat’s words:
[W]e 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.”