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 …
Applegate said (October 20, 2011 at 9:28 pm):
How much more would those workers enrich people if engaged in productive endeavors?
Aye, there’s the rub. Economists have a term “opportunity cost” which, when a business chooses to make a certain investment, is the lost opportunity of doing something better with the money. So when Person A says, “Hey we can make a 5% profit if we do this” it seems a no brainer until Person B says, “But this alternative project will make us 10%”.
Windmills and solar plants, whist not a total dead loss, are broken windows writ large.
But the story forgets that when the economy is stimulated the boys father will be able to earn more income so everyone gains! So breaking windows does work! It only breaks down when the broken window is replaced with an old Cereal packet by the father!
There are standard methods of doing environmental economic analyses and it has to start from technical information of physical, chemical and biological processed.
This representative of the EPA does not seem to know that the main purpose of scrubbers is to remove fine solid particles from smoke and that the main economic benefit results from the improved health for those downwind from the stacks.
[I regard such a person too uninformed ever to head the EPA, which after all is Federal Agency we all rely upon, even those of us who do not live in the USA.]
Financial analysis would treat the window replacement as maintenance cost, but economic analysis works on different principles. Essentially, the economic benefit has to be the benefit to the community as a whole, not to the glazier who replaces the window or the company that makes the glass.
Referring to the “Broken Window” concept is appropriate, except that in economic terms replacement of the window glass is not a maintenance cost but a capital cost because capital was destroyed and has to be replaced. Now if the paint on the window frame had had to be repainted because of normal wear and tear, that would be maintenance.
The real impact of spending money on the scrubbers is to reduce the capital available for distributing dividends to the shareholders, mainly via pension funds and annuities or endowment funds by insurance companies Alternatively, public utility commissions will allow the companies to pass on the cost of scrubbers to customers in the form of high electricity prices.
None of this has anything to do with CO2 because CO2 is not a pollutant but a gas that has no adverse health impact. And unlike the sulphur removed by scrubbers, CO2 is beneficial for plants and thus indirectly beneficial for animals because they rely on vegetation for their existence.
A different technology is needed for removing CO2. And a different economic justification is needed. We just are not sure enough yet that reducing CO2 in the atmosphere will pay off.
Reminds me of trying the tell the time by writing it on a piece of paper. http://www.youtube.com/watch?v=VSSGiA4f5cs You know it’s true because it’s written down before your eyes and verified by the person who wrote it down that it was a true record of the time.
James Bull
Any power given to any bureaucracy for any purpose will be stretched far beyond that purpose.
… if you like Bastiat, you might like Lew Rockwell:
“The EPA – a quintessential big business welfare agency – was founded by Richard Nixon through an unconstitutional executive order. Ever since then, it has achieved bureaucratic success by handing out special-interest construction contracts while catering to the most anti-capitalist, indeed anti-human, forces in our society. The EPA should be dismantled, not exalted. We have yet to learn that the environmental vision is just as impossible as the socialist one, and just as dangerous in the attempt.”
dp says:
October 20, 2011 at 10:47 pm
I always do a double-take when somebody adds “Really” after an obtuse, inane statement. Becuase if you applied it to yourself, you’d have to be piping your breath up into the “solar wind” every time you exhaled.
BUt what you’re saying just isn’t possible and apparently it take a judicious mind to ascertain the difference. Really.
Truly some things, like CO2, aren’t typically toxins like the Supreme Court considers it. Not at all. I could easily argue that salt or even water, in sufficient abundance, are death-causing toxins. THe same can be said of oxygen, and most of us can’t get by easily without that life-giving substance. So when reason and accountability are gone, what you’re left with is something like your epic failure analysis along with a failed EPA–that’s truly what’s broken now, not smokestacks.
(Have you ever wondered what the CO2 content of the atmosphere would be if every smokestack (and we’ll include exhausts on automobiles and trucks in this) actually did what you propose? We’d have a biosphere bereft of that life-giving substance the EPA is trying to regulate and demonize, which by itself gives some measure of how incredibly stupid they are. They;re a great example of Solyndra “logic”. Really!)
Carol Browner would have required that we put new fuel efficient engines in our cars rather than just applying fuel efficiency standards to new cars. Of course that would have had a direct and immediate effect on each and every adult citizen, caused an outcry and failed.
What is really important here is what could be called the ‘Hygiene Principle’
If there is a dirty smelly drain then it can and should be cleaned. Hose it down with a detergent then some disinfectant and all is well. It is not necessary to medically sterilize the drain, just clean enough. There comes a point at which there are diminishing returns: the costs of cleaning the drain any more far outweigh the benefits of a sterile drain.
The EPA (and some posters here) have not understood this principle. So the Clean Air Acts were a benefit – like cleaning the drain. The current batch of regulations are sterilizing the drain and cost far more than any benefit.
However, to say that these regulations don’t create jobs is incorrect. Willis is using the incorrect ‘broken window’ analogy which is too simplistic. The EPA is a bureaucracy and they create more bureaucrats. So first if windows are to be broken, then there needs to be an official window inspection and assessment group (and trainers, HR, etc) whose job it is to assess if a window has been broken, then another group who call for the repair and yet another who regulate the glaziers with a licensing and training scheme, and a quality group who check the repairs and categorize and report to the Federal Central Windows Agency, with offices in every town. Not create jobs? Of course they do, but every job is parasitic as nothing is created.
This very thing is happening now with the EPA regulations. Regulations and enforcement are being imposed and taken too far ‘sterilizing the drains’ – on the basis of ‘scientific evidence’ that is so weak and contrived it would make a climatologist embarrassed. The number of parasitic bureaucrats is growing rapidly and industry in the US is being crippled by the imposition of the regulations.
Now look here, Willis! Browner is absolutely right & I give you an example. Between 1997 & 2007 650,000 UK guvment jobs were created, snoopers of various sorts checking up on everyone else. Of course you have to ignore the 750,000 – private sector manufacturing jobs that were lost in the same period, but that’s irrelevant! Sarc off 🙂
In the “Door into Summer” Robert Heinlein thought of a similar scheme as the protagonist, Dan Davis gets his first job in the future: even though I am familiar with his work, I don’t know whether he was serious or not!
But I got along. The job I found was crushing new ground limousines so that
they could be shipped back to Pittsburgh as scrap. Cadillacs, Chryslers,
Eisenhowers, Lincolns-all sorts of great, big, new powerful turbobuggies
without a kilometer on their clocks. Drive ‚em between the jaws, then crunch!
smash! Crash!-scrap iron for blast furnaces.
It hurt me at first, since I was riding the Ways to work and didn’t own so much
as a gravJumper. I expressed my opinion of it and almost lost my job . . . until
the shift boss remembered that I was a Sleeper and really didn’t understand.
„It’s a simple matter of economics, son. These are surplus cars the
government has accepted as security against price-support loans. They’re
two years old now and they can never be sold, so the government junks them
and sells them back to the steel industry. You can’t run a blast furnace just
on ore; you have to have scrap iron as well. You ought to know that even if
you are a Sleeper. Matter of fact, with high-grade ore so scarce, there’s more
and more demand for scrap. The steel industry needs these cars.“
„But why build them in the first place if they can’t be sold? It seems
wasteful.“
„It just seems wasteful. You want to throw people out of work? You want to
run down the standard of living?“
„Well, why not ship them abroad? It seems to me they could get more for
them on the open market abroad than they are worth as Scrap.“
„What!-and ruin the export market? Besides, if we started dumping cars
abroad we’d get everybody sore at us-Japan, France, Germany, Great Asia,
everybody. What are you aiming to do? Start a war?“ He sighed and went on
in a fatherly tone. „You go down to the public library and draw out some
books. You don’t have any right to opinions on these things until you know
something about them.“
Tucci78 says:
October 20, 2011 at 9:31 pm
> Careful, Willis. You’re in dire danger of becoming a lapel-grabbing libertarian.
In Willis’ hitchhiking post, I was going to comment I occasionally picked up hitchhikers back when I still voted Republican. However, that was before I discovered I was a Libertarian. It’s one reason I like Willis’ posts so much.
An engineering panel from Ford, plus the relevant Ministers from the Australian States, was disinterested in some excellent new anti-theft and post-theft identification methods I presented, based on laser writing on automobile glass. As I was leaving the presentation, a young engineer lass told me “We have a saying, that a car stolen is a new car sold. They are not interested in theft reduction”. So, it’s rather like the broken window. Should we have an agency that assists the theft of motor vehicles? Beats cash for clunkers. Either way, the logic is all screwed up. Australia has an estimated loss of $600 million pa from car theft, in the primary accounting sense. That size of activity cannot exist without official corruption. So watch for corruption signs in the US EPA.
BTW, much of this sense of productivity misuse is also brilliantly explained by Ayn Rand, “Atlas Shrugged”, 1957.
Nick says:
October 20, 2011 at 9:10 pm
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.
===========
yeah we also throw out perfectly useful TVs because someone wanted us to go digital, with NO sane Reason ever given,
now we all have to go buy new radios because some idiots swapping that over also, then theres the scrapping of an ok coppernetwork for the Not Bloody Needed and not going to help, NBN internetwork..above ground glass fibres? recipie for disaster, and massive cost hikes for another govvy funded monopoly nightmare.
and yeah JuLIAR also considered the clunkers idea.
so we waste all the embodied energy already expended and far more to scrap recycle and make new plastic toycars to suit some expert…opinion..
funny thing?
the CSIRO found we could have used the defuct TV analogue netwrok already IN place to run better braodband on! got a TV an aerial you got network.
a lot of our xcars trucks and buses already use gas and have catalytic converters to stop pollution(they say)
I despair.
Well, philisophically speaking this is a transfer of money from businesses to green busisnesses. Money is being swapped around with net gain to the green industry. Someone has to pay for it after all, but there’s only one winner.
The green industry is a scam, supported by governments worldwide, using bastardised science of climate change as an excuse for this. Why more people do not speak out about it is beyond me.
jimmi – At what point does it make sense just to move everything to China or India and just leave an empty factory instead? I suppose hiring somebody to tear down the now uses factory creates jobs, too?
JamesD – Under the Obama administration, hiring somebody to dig a hole and somebody else to fill it in counts as two green jobs, because no fossil fuels are used.
The fallacy in the case of increasing regulations to spur job creation is in the loss of competitiveness in a world marketplace. Increasing a factories operating costs reduces profits or increases prices to the consumer. If it is cheaper to import the same product because the EPA does not have global regulatory power then the factory will cease to be competitive and close. In this case the EPA has actually increased emissions and increased pollution because the products are made in factories where emissions are the equivalent of 1950s America. Also, the extra energy that it takes to move products in some cases half way around the globe increases the energy consumption per unit of production.
The real problem with the EPA is that it does not take an America first approach to regulations. Since it is funded by Americans and they don’t change their ways, Americans will force changes at the ballot box. The EPA has adopted an earth first mentality that at the heart is good. But given the lack of global cognizance, their regulations are bad for America.
If the EPA chose to make American competitiveness the primary factor in regulatory decisions, their benefits to America and to the world would be realized in a far greater measure. Their would be ample budget in the treasury to support their purpose, and America would be stronger.
Furthermore, they could push a cleaner agenda in foreign markets by throttling imports through competition. By creating a competitive environment for a specific product where the cost of labor, production facilities, energy use, taxes, and other factors were all taken into account in regulatory decisions then their power in a world market would be maximized. Although this is a very short essay and the problems are extremely complex in scope, I think that this is the right direction to improve the economy in the U.S. and bring production jobs back to America.
No, do not just whack the EPA’s knuckles. Shoot the other heads that have been growing on this Medusa of an agency. Put in one person who is not politically compromised and reports directly to Congress each year for permission to exist for another year. AND there would need to be real, tested science behind any new proposed regulation change or adjustment.
We should not forget that the EPA is not the only agency that has gone regulation crazy. The FDA Food Safety Act is another regulation salad designed to kill our agricultural industries, hand seed control to Monsanto, and destroy small farmers and farmers’ markets.—it promotes corporate farming big time for no gain in food quality.
This needs to be repealed ASAP!
Without arguing the back and forth of the relative benefits of an EPA in relation to what it costs to have one, whether we refuse to rein in the current monster or vastly expand it to make “jobs”, the one unavoidable nut at the base is that government is not an economy!
Certainly we can “create” as many government jobs as we want–it does not mean we will actually be producing anything of value that can be taxed to pay for them!
Money/capital/wealth must be injected into the closed circle of government “jobs” for them to exist at all–it is not a “sustainable” system without someone else’s value to “create” it with.
Government growth is unsustainable, but they would never use that pejorative on themselves, would they?
Impressive!! This is the first post at WUWT I have seen that has just 1 star!!
Clearly, this site is overrun by people who don’t understand economics 101 aka Opportunity Cost aka Broken Window Fallacy aka Law of Scarcity. I thought it would be hard to deny that government regulations do not create productive jobs, and that it would be harder at WUWT (the hangout of self-proclaimed “skeptical” people … )
But then wonders never cease..
What is lost in the push for more regulations is that there needs to be a intelligent, reasoned balance in the decision making process. When we have our leader saying ” GOP Wants “Dirtier Air, Dirtier Water, Less People With Health Insurance” we know that he cannot justify the raft of regulations with scientific, factual information. Many don’t care if jobs are lost because they are zealots and they loose sight that we will be importing more and more product instead of Crude oil.
One thing bothers me is the expression “smokestacks” since what you currently see in the US is typically water vapor not smoke. Sure there used to be lots of smoke in the distant past and we all agree that cleaning that up was good for all. In the refining industry scrubbers are primary being mandated to capture extremely fine particles of oxides of aluminum or calcium. These are expensive projects and some smaller refiners are electing to shut down rather than undergo the expense. Other mandatees by the EPA are to reduce the oxides of Nitrogen for which different equipment is required downstream of the scrubbers.
One clean Refinery in California recently underwent an extremely expensive project to replace their electrostatic precipitators (that also removed fines) with scrubbers that removed more fines. One needs to decide if going after the last PPM is justified. There is no end in sight for the zealots such as Browner and Lisa Jackson.
BTW many of the biofuels plants are very dirty and will ultimately need scrubers to comply with the EPA mandates when reality sets in.
Not all of us.
Dave in Canmore says:
“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 ”
Thanks for that link. I read Hazlitt’s Economica In Onre Lesson in the ’70’s. It had a great effect on my thinking.
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?
This is another example of what I call the Broken Window Fallacy Fallacy. The BWF is true in most limited circumstances, but it doesn’t always hold that destruction necessarily creates a net loss. Someone will lose for sure, but in the case of a smoke stack scrubber or any effective and cost efficient environmental or workplace protection, there should be a net gain. Less loss of life and health in a large number of people can turn into a net economic gain. The BWF work well for things like war and natural disasters most of the time, but it’s not (IMO) some immutable axiom of nature that always holds true in every situation.
Pls correct the use of ‘your’ above before I read the remainder of your post …
(Psst: “your” =/= you’re or ‘you are’)
.