Guest Post by Willis Eschenbach
Last night I saw Carol Browner, ex-head of the EPA, make an astounding statement on the Colbert Report TV show. I was so amazed, I tracked down the video to make sure I’d heard her right.
Before I tell you what Ms. Browner said that so bemused me, let me take a moment to talk about broken windows.
In economics theory, there’s a famous parable called the “Broken Window Fallacy”. There’s a good description over at the Investopedia:
The broken window fallacy was first expressed by the great French economist, Frederic Bastiat. Bastiat used the parable of a broken window to point out why destruction doesn’t benefit the economy.
In Bastiat’s tale, a man’s son breaks a pane of glass, meaning the man will have to pay to replace it. The onlookers consider the situation and decide that the boy has actually done the community a service because his father will have to pay the glazier (window repair man) to replace the broken pane. The glazier will then presumably spend the extra money on something else, jump-starting the local economy.
The onlookers come to believe that breaking windows stimulates the economy, but Bastiat points out that further analysis exposes the fallacy. By breaking the window, the man’s son has reduced his father’s disposable income, meaning his father will not be able purchase new shoes or some other luxury good. Thus, the broken window might help the glazier, but at the same time, it robs other industries and reduces the amount being spent on other goods. Moreover, replacing something that has already been purchased is a maintenance cost, rather than a purchase of truly new goods, and maintenance doesn’t stimulate production. In short, Bastiat suggests that destruction – and its costs – don’t pay in an economic sense.
OK, so we’re clear about that part. There’s absolutely no net gain, there is a net loss, from the breaking of the window.
Now, suppose that instead of breaking a window, the EPA orders the man to replace the window with high cost anti-UV coated glass to protect his workers from the sun. Once again the glazier makes money, once again, the man loses money, so once again there’s no gain or loss.
Clear so far?
Given that as an introduction, here is Carol Browner, former head of the EPA, explaining how the EPA helps the economy, transcribed from the video:
Carol Browner: The EPA creates opportunities. The EPA creates jobs. When the EPA says “that dirty smokestack needs a new scrubber”, someone has to engineer that scrubber, someone has to build that scrubber, someone has to install it, maintain it, operate it. Those are American jobs.
I leave it to the reader to draw the obvious parallels.
But in fact, this is good news if looked at the right way. Two facts.
First fact.
Think about this.
Obama and the Republicans both want to create jobs.
Second fact.
Add this in.
EPA regulations create jobs.
Well, duh, folks, don’t you get it yet … all we have to do is keep jacking the number of EPA regulations, and watch the unemployment level drop week by week as people are hired to build filters and install scrubbers and climb chimneys and inspect lawnmowers, and check window shades and re-calibrate your sphincter and measure trace gases and do that vital EPA work all over this great land of ours! And the beauty part is, we don’t have to specify in advance how many regulations we’re going to impose.
We’ll just gradually impose more and more EPA regulations, until unemployment has dropped down to say 6%. Then we can take off and add regulations as necessary, subtracting or adding jobs to maintain it right there in the sweet spot.
So America, all those proposed new EPA regulations on CO2? Understood correctly they’re not really a problem and an un-necessary wasteful PITA like you think. That’s the short-sighted view.
When you take a mature, long-range view, EPA regulations are a sign that good times and full employment are just around the corner. The EPA itself said that to implement the full CO2 regulations on all emitting point sources would require a quarter million new federal employees … I mean, all those shiny new jobs will whack ugly old Mr. Unemployment on his head right there!
…
…
I suppose I should put in [sarcasm] tags in there somewhere, but the whole thing is such a parody of itself, I don’t know where to start. Sometimes I just sit quietly and bump my head against the desk to think that in America, it’s gotten to the point where
BUREAUCRATS THINK REGULATIONS CREATE JOBS.
Sigh …
w.
PS—Colbert, as usual, got off the best line of the interview, viz:
You want to protect the air and water, right? You know what the air and water have done to us lately? Hurricanes. Tornados. I think it’s time we fight back, OK, give’m a taste of their own medicine.
Brilliantly demented.
PPS: Regulations are absolutely necessary for us humanoids, including environmental regulations. Otherwise, we’re pigs as a species, every river would be full of filth. It is a question of degree, not underlying need or justification for regulations. We need them, there’s no doubt of that.
So don’t abolish the EPA, that would be a huge mistake. Instead, fix it. It’s out of control. Whack its knuckles with a ruler. My favorite scam?
The EPA funds agencies that then sue the EPA to enforce ridiculous regulations. Then the EPA can wash their hands and say “They made me do it, I couldn’t help it.” That government branch is way off the reservation, fire half the employees and start over or something, it is sick to the core. It is in bed with the groups it is funding, using them to sue itself in a never-ending orgy of symbiotic green greed. Why is the EPA funding anyone at all? They’re an enforcement agency, they shouldn’t be funding anyone. That’s nuts.
Most importantly, take the EPA out of the trace gas business. Regulating CO2 is an incredibly stupid idea, but even if it weren’t, the EPA is not set up to handle it. Congress, you need to act here …
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This sounds like something the OWS people should be protesting. I mean government handouts for legal firms sounds like milk for the 1% to me. Too bad they’ve been co-opted already into defending anti-corporate regulations.
Fantastic analogy Keep up the good work Willis. I am thinking I should start breaking some windows for fuller employment ! !
Not a true analogy. Unlike the window, which was not broken before, the dirty smoke stack is already broken.
I’ve heard that phone sanitization is an upcoming, promising career. Where do I apply?
I love how these whack jobs can simplify things like this and say them with a straight face, as if speaking to kindergarten children. Whoa….now stay stay away from that little button….
I’m really disappointed that Colbert didn’t ask Ms Browner what she thought a safe level of the evil CO2 would be in the atmosphere.
“Congress, you need to act here…”
They could start by disallowing the EPA from bypassing Congress. In fact, it could probably just end there.
Willis, there you go again using perfectly clear logic. It will just cause the Leftists to foam at the mouth.
I knew you yanks had it all wrong. Your creating regulations. See, if you were clever, like us, you’d create a Tax on Co2 Emmissions.
We’re so good at it that we’re all going to be better off after we’re taxed.
So your right Willis, regulations aren’t the answer taxes are, taxes create wealth apparently.
Well, they do in Socialist Australia.
Willis, another great piece. Obama’s Cash for Clunkers program was a multi-billion dollar example of the broken window fallacy. Why junk out older cars which are still usable? Why not just pay people to throw rocks through windows? Debt-laden consumers were encouraged to take on even more debt and buy a new car when they really couldn’t afford it. I wonder how many of those cars were repossessed or the cause of losing one’s home.
I don’t usually bother to watch Colbert’s show. His best work was done in the Mr. Goodwrench commercials. “That’s how I roll” was just classic. Although he never had the title, I will always think of him as “Mr. Goodwrench.”
Steven Chu certainly thought so when demanding the phase out of the incandescant light bulb.
Folks, please remember these people when you vote next year.
The wealth of a nation is measure by its per capita production of those goods and services that raise the standard of living. Make-work jobs take away from that productivity. It could be argued that EPA-created jobs improve standard of living by reducing pollution. There is a trade-off, however. How much more would those workers enrich people if engaged in productive endeavors.
The facts support Browner’s assertion that a clean environment and a robust economy are not mutually exclusive: Since the Clean Air Act was enacted, US GDP has grown by over 300%. A recent study also showed that proposed EPA rules on mercury arsenic and other toxic air pollution from power plants will “have a slightly positive impact on job growth in coming years.”
Since 1977, the Clean Air Act has created over 1.3 million jobs and had a benefit to cost ratio of 26:1. As Holtz-Eakin noted, the EPA’s Acid Rain program, which established a cap-and-trade mechanism for reducing Sulfur dioxide emissions, was “a triumph of market policies to improve the environment.”
[SNIP – Please do not cut and paste long sections of someone else’s text … or even your own from another blog. If it’s already on the web, link to it. Otherwise, the electrons get tired from all the copying and pasting, and the text starts to fade … -w.]
Actually his best work was in Strangers with Candy…
Careful, Willis. You’re in dire danger of becoming a lapel-grabbing libertarian.
Studying free market (especially Austrian School) economics back during the Carter Malaise is how it happened to me.
Last summer I read a book called “the scheme for full employment”
An introduction from the UK amazon site:
“The Scheme for Full Employment” is a grand program that, well, guarantees full employment. Eight hours’ worth of work for eight hours’ pay. Grand days await those who join the scheme, what with an easy job that pays extremely well and has lots of benefits and perks attached to it.
The Scheme relies on a network of depots/distribution centres, with all that goes with it: a mechanical, almost flawless organisation, workers for every kind of task (from key keepers to gate guards), and, obviously, van – pardon, UniVan – drivers wheeling some kind of materials to and fro, in an never ending merry-go-round of transportation.
As the book progresses we find out that nothing happens to the merchandise being carried… it simply gets carried around from depot to depot on and off UniVans. And, most strangely and comically, that the goods are, well, UniVan parts. Now how stranger can the book get?
Seems they have started to implement the idea.
On the other hand Willis , I would be interested to see in some future post of yours how you envisage the world future when robots and nanotechnology lead us to the point where all menial and easy intellectual jobs are taken care of by robots. Part of this is happening in the US, where outsourcing is replacing robots ahead of time, but the writing is on the wall. The great shift in advanced countries of cultivating with only 1 or 2% of the population because of mechanization of cultivation when more than 80% were occupied by land jobs a hundred years ago has resulted in the great expansion of cities, and jobs grooming and feeding each other and getting more and more “educated”, which delays adulthood and need for a job. The need for governments to create jobs comes from this, within our economic paradigm. Dig holes and fill them.
We need a different paradigm.
Well then there’s the “why don’t you just butt out” principle.
It turns out that some chemical companies are able to make “effluent” in all colors of the rainbow; some more obvious than others, and in the case of “smoky” effluent, not necessarily good for animals and the little people or just plain ugly.
One such chemical company, was Monsanto Chemical, who got their start making Sacharin, maybe on the Eastern shore of the Mississippi River, in East St Louis. Now I don’t know what color smoke you get from a Sacharin factory; but down through the years, Monsanto, was dishing out a pretty good rainbow of colors, around East St Louis..
Sooner or later, “effluent” can be more trouble than it is worth; and Monsanto eventually concluded that since they were now a diverse chemical company, and somewhat of a major presence in the community; that they should put some effort into sprucing up their public image as a part of their good neighbor policy. Getting rid of that color chart, seemed like a good place to start, so Monsanto set their Central Engineering Department loose on a project to design scrubbers, to rid their skyline of the chemical rainbow; it would probably also lead them to a better control over their processes anyway; sure it would cost them some money; but maybe they would get some back in better process control, and certainly in public image. After all, who wants to be a public nuisance.
So the scrubbers were desinged and installed, and then Monsanto found some other of their plants, where they could use the same basic design to good effect; so now they had to build a bunch more scrubbers.
Well some other people besides the residents of ESL noticed the big improvement; and they asked Monsanto; ” Say where’d you get that stuff anyway ?”. Well we just built it ourselves, was the response. “Could you build ME some of those things; now that you’ve done the donkey work, I might just as well buy them from you, as try to make my own.”
So that is how Monsanto, acting simply on their corporate good neighbor instincts, built themselves a good business in smoke stack scrubbers for all sorts of industries, besides their own, and cleaned up, not only environmentally, but also at the bottom line.
And that all happened, long before that nutcake Carol Browner was knee high to a grass hopper.
Government is seldom the solution to the problem; government usually IS the problem. I’m probably stealing that and butchering it from someone like probably Ronald Reagan; anyway thanks to him if it was him; it is only too true even to this day.
I can’t speak for what their public image is these days; but when I used to work for them, they were a very responsible outfit, and made some darn good products. So far as I know, Sacharin is still, after more than 100 years, the ONLY plastic sugar substitute, that has never been indicted for any known health problem; well unless you consider its bitter aftertaste to be a health problem. Me; I use real sugar.
They also make some huge fraction (used to be 85%) of ALL of the world’s Aspirin; sold it by the rail car load. Used to have a big three inch diameter tablet in my desk, that I could scrape a sliver off now and then with my Swiss Army knife. Aspirin actually has a chemical formula; and the formula doesn’t change, just because it says Bayer on the bottle; only the price does.
jimmi the dalek: The smokestacks aren’t dirty. Just CO2 and water. So the window analogy is perfect. Look what the idiot is claiming: By increasing COSTS on Production, we create jobs. By DESTROYING capital, we create jobs to replace it.
You could also hire people to dig holes and fill them in. Jobs! Of course, you are better off just giving them the money, as then they would have the most valuable resource there is: TIME.
I came across Bastiat’s broken window fallacy in Henry Hazlit’s “Economics in One Lesson.” I highly reccomend this little book for those wishing to think clearly about economics. Hazlit has a simplicty that I see in Willis’s writtings.
For fans of Willis it’s a short but sweet read.
Economics in One Lesson is free online here:
http://www.hacer.org/pdf/Hazlitt00.pdf
“””””” Gordon says:
October 20, 2011 at 9:29 pm
The facts support Browner’s assertion that a clean environment and a robust economy are not mutually exclusive: Since the Clean Air Act was enacted, US GDP has grown by over 300%. A recent study also showed that proposed EPA rules on mercury arsenic and other toxic air pollution from power plants will “have a slightly positive impact on job growth in coming years.” “””””
Whoop de do !! that’s one of those “Have you stopped beating your wife ?” things isn’t it ?
“”””” Since the Clean Air Act was enacted, US GDP has grown by over 300%. “””””
So the question is, how much would the US GDP have grown; and how much cleaner would the environment be now; it the EPA had simply butted out, and let competition and free enterprise work their magic.
I have just one simple suggestion for ANYBODY who wants to complain about how company XYZ conducts their business; If YOU don’t like how THEY do things; then PROVE that YOU don’t like it.
Don’t invest your money in their stocks or bonds. Don’t buy ANY product that they make or sell; and don’t EVER work for any division of theirs.
Now I believe that YOU are serious; otherwise, butt out !
Nothing in the articles of incorporation of any corporation, instills it with a social conscience; its function is simply to maximise the return on the investment of its shareholders. It can’t achieve that if it pisses off its customers, or its employees, or the neighborhood, that it does business in.
So we are in control; we just don’t do business with “bad” behaving corporations.
Great post, and great reference to one of the most important economic concepts, the broken window fallacy, and seen vs. unseen.
This idiot Browner represents everything that is wrong with this administration, staffed by people who do not understand this concept.
It is frightening that people like this have staggering amounts of power. 9.1% unemployment is the result.
Here is the full text of Bastiat’s essay What is Seen and What is Not Seen:
http://www.econlib.org/library/Bastiat/basEss1.html
Regulations do create more opportunities for picking winners and losers and shakedowns, generally. It’s the Chicago Way.
I wonder, do they realise that when you increase regulations like this, companies either move to another country, losing you that job, or the company goes out of business, losing everyone that job? Eventually the only growth industry is bureaucrat, pushing memos and forms around in an ever expanding circle.
And you might want to see “The Road To Serfdom”, too many bureaucrats result in consequences due to the inevitable forces present in large bureaucracies, those consequences are economic collapse and eventually dictatorship.
The cost is too high.
For many, the cost of too much bureaucracy is their life.
This has all happened before.
@Gordon Oehler.
What an excellent place to post such a response.
Just like the whole CO2 vs. Global Warming;
You are confusing correlation with causation.
I personally believe the microelectronics revolution had just a wee bit more to do with GDP growth than did new EPA regulations.
Sorry the idea that the EPA can be “fixed” is borderline insane. It needs to be removed and have a law passed banning it from ever existing in any form ever again.
Its the job of the local governments and the individual states to deal with keeping rivers and other things “clean”… the only time the federal government should have any power is when 1 state starts whining that another state is doing X to the rivers, blah blah blah, etc.