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 …
Gene L. said @ur momisugly October 21, 2011 at 1:11 pm
“Clearly the road to prosperity is built with shovels!”
Shouldn’t that be hammers and sickles? 🙂
Geoff Sherrington said @ur momisugly October 21, 2011 at 4:57 am
“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…
BTW, much of this sense of productivity misuse is also brilliantly explained by Ayn Rand, “Atlas Shrugged”, 1957.”
Mrs Git’s Subaru has Data Dots sprinkled invisibly throughout the vehicle, so some manufacturers at least care about car theft.
I found Rand’s collection of essays, “Capitalism: The Unknown Ideal” even more brilliant. Back in the late 60s I read all her then current work. It’s kinda wierd reading Alan Greenspan’s essay and comparing it to his more recent utterances.
FWIW,
I used to record Colbert and John Stewart, for the humor.
It seems, lately, they have forgone humor in an all-out rush to promote an ideology.
Which begs the question;
Where does comedy, cross the line into activism.
I stopped their shows long ago, with regret.
TimC says:
October 21, 2011 at 2:55 pm
“But at economy-wide macro level, isn’t it rather more about the savings ratio – if savings are increasing overall (worried people are paying off their debts) the overall effect is a reduction in economic activity – economic growth declines, or the economy goes into recession. If the savings ratio is reducing (confident folk are incurring more debt and spending their money relatively freely) the economy will improve.”
When people pay their debt, the money is available, for instance at the company that receives the payment, to be re-invested by that company. At the moment, lots and lots of small companies in Greece go broke (says the BBC, for instance) because their customers can’t pay the outstanding debt.
When the savings ratio is reducing, the banks have less capital to make loans. Assuming that people don’t save by stashing the money under their matress but carry it to the bank, their savings become available for loans.
You have to save money to have money to invest.
Carol Browner is hot! If she was AGW she’d be the upper curve on the grid shooting straight toward 40 C! If she was a volcano, she’d be an active volcano. I’m just saying, she may be a damned Commie at heart, but she’s the hottest 55-year-old Commie in America!
[NOTE: We are letting this go through because Carol Browner might appreciate the sentiment and we try not to moderate heavily, but if anyone takes offense, please direct it at Robert. Carol Browner does need to be taken seriously. -REP]
TimC says:
October 21, 2011 at 2:55 pm
Well, my point is in capital letters at the end of the post, so I’m not clear how you didn’t get it. To repeat, it is that REGULATIONS DON’T CREATE JOBS, even though bureaucrats think they do. There is no secondary beneficial effect of job creation from the EPA regulations as Browner speciously claims.
Nor do I understand why the broken window fallacy would be different between the local level (where it is a definite loser) and the macro level (where if I understand you, you claim it is a winner). Since the macro level is just the sum of the local levels, your explanation sounds like the guy saying “The supermarket loses a little bit on each transaction … but they make it up in volume.”
Thanks,
w.
[NOTE: We are letting this go through because Carol Browner might appreciate the sentiment and we try not to moderate heavily, but if anyone takes offense, please direct it at Robert. Carol Browner does need to be taken seriously. -REP]
I apologize in advance to anyone who was offended…not my intent. Let me put it this way: Congressman Keith Ellison said something very similar less than two weeks ago: “Regulations create jobs.” http://www.realclearpolitics.com/video/2011/10/09/dem_congressman_keith_ellison_regulations_create_jobs.html
Congressman Ellison is NOT HOT. And both he and Browner are economic ignoramuses, despite their present or former high positions in government and stellar academic credentials. And that’s very serious, indeed. They and their ilk have put into place the policies that brought us to where we are now, and we don’t much like it.
Robert says:
“Carol Browner is hot!”…..
“I apologize……”
“and we don’t much like it.”
============
Speak for your self 🙂
From Robert on October 21, 2011 at 4:08 pm:
Are you trying to make Pamela Grey jealous? She’s the site’s designated 50-ish hottie. Plus she’s a perky redhead to boot!
Oh, she can also cook a great venison stew, so I’ve heard. Does Browner look like she can cook anything without a (solar/wind powered) microwave?
WRONG WRONG WRONG…..
The Federal Government should NEVER be the enforcer of environmental regulations. Probably shouldn’t even be at state level.
Carol Browner doesn’t need to cook because she’s HOT. On the other hand, if her policies on energy and the environment are taken in toto, our energy will cost twice as much (or more) so we all shall have to cook less. A lot less, since food will also be more expensive. The good news, we will all be slender! And that’s so HOT.
Browner hot?? There are hotter 60 year olds out there. She looks like she has an eating disorder form all her environmental guilt!!
thepompousgit says :October 21, 2011 at 3:30 pm “I found Rand’s collection of essays, “Capitalism: The Unknown Ideal” even more brilliant.”
Thanks for the reference. I was able to read Atlas Shrugged for the first time back in the fall of 1975 on a road trip out to Colorado with some high school friends. We took my first new car – a 1974 Mercury Capri which cost me $3389- on the trip. I turned in my Honda 600, which no longer had reverse, for the Capri. I learned that it is not a good idea to a take a non- 4 wheel drive vehicle on the roads marked with ——‘s on the map.
I recently came across a reference to the Ayn Rand Institute- http://www.aynrand.org/site/PageServer?pagename=index
It seems that Bastiat’s Broken Windows fallacy has become the new liturgy of the Democratic Party, we’ve even seen Paul Krugman pretending that this is a great economic stimulus. But that’s not the surprise it should be as Taranto has illustrated that Krugman will argue with anyone even himself to write a hack column.
In order to save the economy and Obamacare, rather than breaking windows, we all need to break one of our legs each year. Not only would we be supporting a living wage job, like doctor and nursing professions, we would prove for once and for all that we need government intervention in our lives. It would be beautiful, job creating dependence for the greater good of society.
From Investopedia: 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.
This is sophistry. First of all, any spending decision in favor of one vendor robs all others, whether for your first window, third wristwatch, or sixth Bentley. If I replace a plain glass window with a stained glass one, broken or not, I am replacing one, surely; I am also purchasing a new luxury item; I am favoring one vendor to the expense of all others, whether glaziers, artists, or bomb-makers–my money here is going to exactly one place. If I break a window accidentally, and must needs replace it, I will do so; my $75 dollars to the glazier has exactly the same impact on the economy as if I took that $75 to Trader Joe’s. In fact, the glazier (and the economy) need never know whether I broke the glass, am upgrading it, or am in fact expanding my window inventory, for that $75 to impact the economy equivalently. It also need never know whether I am spending my money willingly or not. And the impact, paid forward, is not informed by the provenance of my money (unless I stole it from the glazier, of course).
The insistence, attributed to Bastiat, that maintenance spending is not economically stimulating is utter nonsense. Ask any of the contractors here in Oregon who build and repair our bridges whether their bottom line is helped only when building new bridges, and whether only new-construction income then makes its way out into the economy at large!
Willful destruction of an item, when its replacement supplants an otherwise budgeted outlay, of course does not contribute to economic growth. However, where maintenance is budgeted in, because (rare) wise planners know that little lasts forever, maintenance spending does indeed help grow the economy, because the money thus spent is not removed from new-construction and other budgets.
Anyway, the “broken window” fallacy is a straw man here. We are talking about infrastructure upgrades being mandated where there is no benefit. Replacing a broken window is not the same as being forced to upgrade it to crystal “just because”. Whether the obvious benefits in the former case make up for the disappointment to the boy’s father because he couldn’t buy his next golf club is unknowable. In the case of EPA’s increasingly negligible benefits for increasingly costly retrofits and new-construction standards, we can easily tell whether there will be an economic shrinkage.
Milton Friedman, upon observing a Chinese construction operation with thousands of men shoveling dirt asked,
“Why isn’t there any modern earth moving equipment here?” His Chinese host replied,
“Oh, we want to create a lot of jobs too.”
“Then you should give the workers spoons instead of shovels” replied Milton.
Bastiat’s was criticising the idea of “purposefully” breaking windows to generate employment. It doesn’t – it’s wilful destruction at its most moronic and a waste of scarce resources.
Of course they do and look no further than Europe to see just how far they will go when “let off the leash”. Here in the UK the “public sector” represents more than 50% of the economy, manufacturing just 11%. Our government is racking up eye watering debt to keep the scheme going. As even the most “stay at home” will have noticed, the cracks are beginning to show!
Willis – thanks for your reply to my posting.
My point was that if the man’s son breaks that proverbial pane of glass – and that’s all that happens in the local (micro) world of glass on that particular day – the local economy declines. However if two of his neighbours decide to spend their money fitting new windows to their houses, the local economy booms – and this is a scalable effect, at national level.
And yes, if you read the last paragraph of my original post I agreed with your main premise – but on a different basis with which the “broken window fallacy” is unconnected.
Willis Eschenbach says:
October 21, 2011 at 8:59 am
Bulldust says:
October 21, 2011 at 1:45 am
“While the analogy isn’t a bad one, it isn’t entirely accurate either. The original window does not represent the negative externality that a “dirty” smokestack does. If the smokestake is emitting gases that have a negative impact on other parties, then it might be appropriate to internalise the externalities (the costs to others of the pollution).
That would make sense if the smokestack were emitting pollution, although it still wouldn’t create jobs, at least we’d end up with less pollution. And at that point it might, I emphasize might “be appropriate to internalise the externalities”.
But we’re not talking pollution. We’re talking CO2. So your argument doesn’t apply.”
Actually the evidence is that it does apply, Bulldust just got the sign wrong. The benefits of CO2, more food with less labor, materials, and water, are known and observed in 100s of real world studies. Also said bebfits of CO2 continue to increase beyond a linear rate to well over 1,000 PPM. The projected “what if” harm (small frogs for instance) decreases logarythmically, and in reality are never or very rarerly observed.
At 12:17 PM on 21 October, Kev-in-UK had written:
As with climatology, it’s the “officially approved” economists in government (and quasi-governmental organizations – the “QUANGO” types with which you Brits are familiar) who have their heads so completely and inextractably wedged up their own arses,
Those of us reading regularly in fora such as Watts Up With That? know full well that there are plenty of climate scientists who have satisfactory understanding of the “large and complex (and relatively chaotic…)” realm of atmospheric physics and therefore the question of whether or not anthropogenic global climate change has happened, is happening, or is ever likely to happen, and how such change might occur. And has not.
They’re simply not “officially approved.”
Similarly, those of us who regularly monitor libertarian Web sites – like Lew Rockwell‘s blog, the online resources of the Cato Institute and the Ludwig von Mises Institute, and who have been following the political career of Dr. Ron Paul – know that there are economists who have a strong and reliable handle on the realities of human action in the marketplace. Hell, they predicted our present “Great Recession” – including the ongoing sovereign debt crises in Europe – with unerring accuracy years in advance.
They’re emphatically not “officially approved.”
Never wonder why so many libertarians are ranked among the “global climate change deniers.” We’ve seen the preposterous bogosity of the “officially approved” all our lives, and recognize it for what it is, whenever and wherever it manifests.
Speaking of the Austraian School – you should check out the Keynes v Hayek Rap videos – best videos ever made – especially part 2
“jim says”
Catcracking says on October 21, 2011 at 6:51 am
…
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,
…
(of course) False on it’s face; EPA established by a GOP administration (Nixon).”
Thanks Jim your reference that a Republican initiated the EPA which confirms my position that the comment stating the Republicans want dirty eater… is totally lacking in a factual basis and is nothing other than blatently false.
Also this highlights the danger of establishing any positive program (initiated to improve the environment) that can later be turned into a destructive activity by the zealots and those lacking reasonable sound judgment. That is the danger of giving the power to the government when subsequently there are not reasonable administrators.
Some examples of latest abuse by zealots is summarized below. Possibly you can defend these edicts by an administration out of control:
“EPA’s new proposed limits are so stringent that no new, state-of-the-art coal-fueled power plant equipped with highly efficient devices to scrub emissions or other pollution controls to meet still other requirements will be able to meet each of the multiple regulations and standards EPA imposes. It’s like forcing an automobile manufacturer to build a vehicle that seats 10, goes 200 mph and gets 60 miles on a gallon of gasoline. It can’t all be accomplished currently in a single design.”
Read more: EPA’s new rules spell economic disaster – Pittsburgh Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/s_762921.html#ixzz1bWT4CNfJ
EPA attempt to impose industry killing ozone regulations subsequently overruled by the President.
Requiring cars to get 55 mpg,
Pushing for more ethanol, E 15, in gasoline over engine manufacturers objections, although EPA reports acknowledge no environmental benefit for over 50 years,
Awarding Half a billion dollars to manufacture electric cars in Finland, (one of Al Gores holdings), no jobs in USA factories
Over a half billion $ to failed Solyndra, including not following law regarding subordination of loan,
Failure of taxpayer subsidized commercial production of cellulosic ethanol requiring back off of mandated use of cellulosic ethanol,
7 $ million stimulus to foreign workers in Oregon,
Lawsuit against Texas overruling air permitting,
Shutting down coal mines,
Attacking oil production companies in N Dakota for killing one bird while ignoring thousands of birds killed by windturbines,
Attempts to limit ozone levels that would shutdown US industries, subsequently over ruled by the President
The list goes on and on.
…
It is no wonder that many want to abolish the EPA, DOE and other departments that have turned the government agains our machine that drives the economy and produces jobs. I would prefer to fix it but experience has indicated that this is difficult with government agencies, and with zealots in Congress.