The broken window fallacy was first presented by the French economist Frédéric Bastiat. In Mr. Bastiat's story-line, the fallacy of the broken window points out economic principles: that destruction doesn't benefit the economy, and that there are other direct and indirect consequences to be considered in economics.
As an overview of Bastiat's story-line, a window is broken, meaning the owner will have to pay to replace the glass. There are some who consider the broken window a benefit to the economy because the window owner will have to pay the window repair man to replace the broken glass. The window repair man will then presumably spend this "extra money" on something else, thereby jump-starting the local economy. Rather than a net loss to the economy of an asset (the window), the window replacement is considered a net gain. But onlookers consider only the parties directly involved in the short term: the owner and repairman, rather than looking at all parties (directly and indirectly) involved in the short and long term.
Those with this world-view now run the federal government.
Likely obvious to others, the loss of the window and need to pay to repair the window have reduced the window owner's economic status and will affect the economic status of others from whom the window owner would have purchased some other goods or services with that money. This is a loss to the economy.
How does this economic principle relate to the current approach to environmentalism? As examples, the EPA can pass a new rule that requires industry to purchase, operate, and maintain additional air emission equipment...in their minds, economic stimulus. The government can confiscate taxpayer money and divert it from its free-market economically useful purposes to supplying incentives for new "green energy" start-ups...in their minds, economic stimulus.
Cost of Compliance
In broken window environmentalism, to achieve the government's goals, the cost of compliance is considered a stimulant for the economy. In this upside-down world, new equipment must be purchased, operated, and maintained, or perhaps a new industry can be money-stimulated and artificially developed to help achieve a government-desired environmental goal. Perhaps more employees or consultants will be hired and paid, thus incurring additional costs for permitting, reporting, and other administrative burdens.
To those outside broken window environmentalism, all of this constitutes the hidden cost of compliance -- a veritable tax, and an extreme drain on the economy.
The Competitive Enterprise Institute published its year 2013 report entitled "Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State." The report notes that the cost of compliance is $1.806 trillion. This breaks down to $14,768 per U.S. household.
Broken window economics is alive and well in Washington, including in environmental regulatory approaches.
Were all of the environmental regulations and economic manipulation clearly for the purpose of protecting human health and the environment, some consideration of reasonableness would be needed. Unfortunately, this is not the case. Two words: never cleaner. By any demonstrable measure, the environment in the U.S. has never been cleaner in our lifetimes than now.
Contemplate the not so distant past outside my office window here in Pennsylvania's Steel City, Pittsburgh. Coke plants, tar plants, steel mills, glass manufacturers, and ancillary other heavy industry lined the banks of the rivers, producing the raw products of the country's industrial revolution.
Donora, Pennsylvania, the location of one of the worst air pollution incidents in our country's history, lies along the river near Pittsburgh. In October 1948, 20 people died and over 7,000 were hospitalized or became ill as a result of an air inversion that trapped the air emissions from the Donora Zinc Works and other nearby industrial operations in this small town's valley.
Industrial wastewater discharges were pumped into any nearby stream or river to severely test the buffering capacity of the natural system to absorb such a flux of pollutants. Wastes were simply moved out of the way from the production area, so as not to be an impediment to work. This was the state of the environment up until even the 1970s.
By contrast, the EPA's recent regulatory agenda items related to PM2.5, ozone, and sulfur dioxide clearly point to the vast improvements we have made to the environment, as well as the detriment to the economy of broken window environmentalism. As a measure of the quality of air in our country, the EPA maintains data and statistics that quantify air quality from 1980 to the present. Based on the EPA's own data, the national ambient air quality standards for certain target pollutants have all steadily and dramatically reduced. As a national average:
- Carbon monoxide has been reduced 82%
- Ozone has been reduced 28%
- Lead has been reduced 89%
- Nitrogen oxides have been reduced 52%
- Particulate matter as PM10 has been reduced 38%, and fine particulate matter as PM2.5 has been reduced 27%
- Sulfur dioxide has been reduced 83%
Regardless, according to the current Washington administration and its supporters, the quality of the air in our country is literally killing us. Consequently, more stringent, job-killing regulation is required to control the already significantly reduced particulate matter, ozone, and sulfur oxides in our air. Once again, the markers of broken window environmentalism are obvious, diverting economy-stimulating wealth to additional economy-stifling environmental regulatory controls in a country that has never been cleaner in our lifetimes.
Broken window environmentalism has become rampant, recent examples are numerous, and the numbers are growing. We should be spending our efforts wisely to maintain our own economic abundance so that we may continue to help ourselves and others. Our former abundance allowed us to maintain a relatively high standard of living that benefited all in our country, in addition to providing huge contributions throughout the world to assist poor nations to grow crops, access clean water, overcome diseases that are only history to us, and respond to natural and man-made disasters. Instead, broken window environmentalism would rather have us deal with subjectively applied requirements, cripple ourselves economically, and diminish our ability to help others and ourselves.
Look around at the pain and suffering caused by our crippled economy. Broken window economics has a lot to do with this. It doesn't have to be so.