President Obama's Broken Glass Parable

January 27, 2010

Tonight, President Obama noted in his State of the Union address that the stimulus bill ("Recovery Act") has been successful at creating jobs:

Talk to the window manufacturer in Philadelphia who said he used to be skeptical about the Recovery Act, until he had to add two more work shifts just because of the business it created.

This is tailor-made for an economics lesson, using the very same example that Frederic Bastiat did in 1850. In his story, a boy breaks a shop window and is about to be punished, but onlookers suggest that it was actually a good thing because it will give glassmakers (glaziers) more business. Not so, reminds 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.

Instead of having a window and six francs, the shopowner just has a window. The glassmaker comes out ahead, but everyone else is poorer, or at best the same. So too with our Philadelphia glazier: that people are buying his product says nothing about whether it's productive activity or the best use of those dollars.

David Stockman, Ronald Reagan's first budget director, referred to this as "single-entry bookkeeping": presenting benefits but ignoring costs.

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