Is the Government Breaking Your Windows?

There is a parable that goes like this: Suppose a shop owner arrives at his shop one morning to find that his storefront window has been broken. He is obviously saddened by his misfortune, wearing a distraught look on his face as he stands on the sidewalk looking over the damage. He figures it will cost $1000 to replace. Passersby attempt to console the man, patting him on the back and saying, “well it is unfortunate, but what would become of the glazier if panes of glass were never broken? That type of stuff happens but it keeps the economy going.”

Now this type of thinking may offer some comfort to both the shop owner and the passerby, but it can be shown to be false. We must concede that the misfortune will result in the shop owner spending $1000 to replace his window, and the glazier will be enriched by $1000. But this is of no benefit to the economy, because the shop owner is $1000 poorer. That’s a $1000 he could have spent on improving his shop, or buying a new suit, or going on a vacation. So other trades are denied potential future business by the shop owner’s misfortune. The passerby’s consolation rests on feeling good about seeing the economic activity that is visible to all, but its falsity comes in taking notice of the hidden costs.

The parable continues: Now suppose the glazier in fact has hired a local thug to go break the shop owner’s window? This would receive universal condemnation, but the economic impact hasn’t changed. The parable is an analogy for government spending, the thug is the taxman, and the glazier is the special interest that the government is acting on behalf of. I imagine the passersby are the politicians and their media allies, quick to talk up the benefits of the visible economic activity while ignoring the hidden costs.

Let’s change the facts a little bit and make it more relevant to our own circumstances and current events. Let’s say the thug is burglarizing a local working class neighborhood, going door to door and demanding that each occupant give him 15% of the money they made that year. Perhaps he then takes his new found riches and distributes them to some of his best friends, and collectively they go buy themselves new cars or some other luxury. Would we say the thugs were engaged in some sort of social good that mitigated their crime because the economy was stimulated? Or is it probable that the victims would have spent that money themselves, perhaps even in a more productive way than the criminals? Now imagine that the thug was not really a thug, just a guy with an IRS badge, and the friends were Wall Street banks, or the auto industry, or labor unions, or the defense industry, or the health care industry.