Frederic Bastiat, Barack Obama, and Sarah Palin; UPDATED
There has been a lot of debate over the wisdom of Barack Obama’s monstrous $787 billion stimulus plan ever since he first proposed it. At the time he proposed the plan, Obama claimed the country may never emerge from the recession unless his plan was passed with alacrity. In fact, Obama wanted his plan passed so quickly that neither the Congress nor public were even given the opportunity to read the bill.
As time has passed, an increasing amount of people are coming to the realization that the plan has been an unmitigated failure and waste of money. The most visible and painful sign of this failure is the rising unemployment rate. In fact, the current unemployment rate is, predictably, higher than Obama said it would be even without his stimulus plan. Not only has the unemployment rate climbed well beyond what President Obama envisioned, but Obama himself now admits it will continue to rise or “tick up”, as he calls it. Although he won’t admit it, this indicates to me that even he knows his stimulus plan has been an abject failure.
Unemployment hit 9.5 percent in June, according to the Department of Labor, putting the figure 2.5 percent higher than the White House had predicted it would be if a government stimulus spending program went into place. Moreover, the new figure is nearly one percent higher than where the White House said it would be without any stimulus spending at all.
Why has Obama’s huge government spending plan failed to stimulate the economy and produce all those jobs Obama promised? The answer is quite simple, as most economic issues are. I am reminded of Frederic Bastiat, a 19th century French economist and philosopher who opined that most bad ideas, economic or otherwise, are rooted in myths or, as he called them, “fallacies,” Since myths are difficult to eradicate, history tends to repeat itself until and unless said myth is itself eradicated.
Bastiat, a libertarian, is still known today for his intellect and vigorous defense of free markets. Bastiat was a master at using fables and parables to explain economic concepts in terms anyone could understand. He famously believed economics was an inherently simple topic and that most people understood economic issues intuitively. In a famous treatise written in 1850, the year in which he died, Bastiat fashioned his famous “fallacy of the broken window”. This is one of his most enduring legacies.
Henry Hazlitt, an economist who was influenced by Bastiat, explained the broken window fallacy in his book, Economics in One Lesson. Here’s the relevant excerpt:
A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier.
As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sun. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum.
The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace the window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.*
John Stossel, of ABC News, takes another look at Bastiat’s broken glass fallacy in the following exceptionally well done video.
President Obama’s stimulus plan is a failure because he ignored the broken glass fallacy, as all government spending plans to stimulate the economy do. Manifest in Obama’s plan is the idea that government can spend the money better and more efficiently than the private sector. What Obama and his fellow liberals don’t understand is that every dollar they spend has to come from somewhere. One can’t stimulate the economy by raising taxes and borrowing money from the private sector. In short, every dollar the government spends is a dollar the private sector cannot.
Bastiat understood this over 150 years ago, as does Governor Palin today. She intuitively understands Bastiat’s basic premise that individuals and businesses, which comprise the private sector, are much better able to stimulate the economy and thus, create jobs, than the government. The government simply needs to get out of the way and allow them to do so. Raising taxes and spending more money doesn’t stimulate anything other than unemployment as we’re seeing today. In her RNC speech, Governor Palin deftly and effectively discussed the fallacies in Obama’s economic plans:
…Government is too big … he wants to grow it.
Congress spends too much … he promises more.
Taxes are too high … he wants to raise them. His tax increases are the fine print in his economic plan, and let me be specific.
The Democratic nominee for president supports plans to raise income taxes … raise payroll taxes … raise investment income taxes … raise the death tax … raise business taxes … and increase the tax burden on the American people by hundreds of billions of dollars. My sister Heather and her husband have just built a service station that’s now opened for business — like millions of others who run small businesses.
How are they going to be any better off if taxes go up? Or maybe you’re trying to keep your job at a plant in Michigan or Ohio … or create jobs with clean coal from Pennsylvania or West Virginia … or keep a small farm in the family right here in Minnesota.
How are you going to be better off if our opponent adds a massive tax burden to the American economy?
Somewhere, Frederic Bastiat is smiling, content in the knowledge that his philosophy of limited government is alive and well in Governor Sarah Palin.
Update: Illinois Conservative (Whitney) received an email from a friend and left it in the comments. It fits right in with the fallacy of Obama’s stimulus plan.
Shortly after class, an economics student approaches his economics professor and says, “I don’t understand this stimulus bill. Can you explain it to me?”
The professor replied, “I don’t have any time to explain it at my office, but if you come over to my house on Saturday and help me with my weekend project, I’ll be glad to explain it to you.” The student agreed.
At the agreed-upon time, the student showed up at the professor’s house. The professor stated that the weekend project involved his backyard pool.
They both went out back to the pool, and the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, “First, go over to the deep end, and fill your bucket with as much water as you can.” The student did as he was instructed.
The professor then continued, “Follow me over to the shallow end, and then dump all the water from your bucket into it.” The student was naturally confused, but did as he was told.
The professor then explained they were going to do this many more times, and began walking back to the deep end of the pool.
The confused student asked, “Excuse me, but why are we doing this?”
The professor matter-of-factly stated that he was trying to make the shallow end much deeper.
The student didn’t think the economics professor was serious, but figured that he would find out the real story soon enough.
However, after the 6th trip between the shallow end and the deep end, the student began to become worried that his economics professor had gone mad. The student finally replied, “All we’re doing is wasting valuable time and effort on unproductive pursuits.
Even worse, when this process is all over, everything will be at the same level it was before, so all you’ll really have accomplished is the destruction of what could have been truly productive action!”
The professor put down his bucket and replied with a smile, “Congratulations.You now understand the stimulus bill.”