In the first chapter of Hazlitt’s book, we learn of the broken window fallacy. It is the idea that if there is something destructive which occurs, don’t worry, be happy! It’s only an opportunity for more economic opportunity to occur, a blessing in disguise. In fact, we would be better off if more disasters happen so we can stimulate more buying opportunities, which will create jobs and line the pockets of the ones who rush to fix the problems. This theory is akin to Pollyanna starring in Village of the Damned.

In reality, no new economic activity occurs because of the broken window. Rather, the one who has to pay for replacing the window will have to forego taking a vacation or buying those new books from Amazon…thus, his money may line the pockets of the glazier, but the hotel chain or the bookseller will not be so prosperous. No net gains occur. Would someone please give this simple illustration to our president?

President Bush has fallen for the broken window fallacy. Because we are teetering on the brink of a recession, he and the Fed chairman, Ben Bernacke, are trying to do something quick to keep the country from what they perceive as a perilous plunge into the abyss. One bright idea is to play the Lone Ranger riding in on the white horse by spending $150 billion to give taxpayers a nice check (a “tax refund”) which they have to promise to spend, not save, in order to stimulate more economic activity. Shame on you for being cautious with your money!

This is where economics meets reality. If you’ve been yawning through this discussion, prop up your eyelids with some toothpicks and try to make some sense of it. I don’t pretend to know a lot about this topic, but I think we all should try to understand the basics. Here’s a bit of reading for you to take theory and see how it fits with current events.

This story tells that Bush and Bernacke want a “lift” for the economy. When you read it, note how often the words “quick” and “rapid” are used. Then muse on Hazlitt’s main premise which is “the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups.” He also says, “The bad economist sees only what immediately strikes the eye; the good economist also looks beyond.” Are the president and the Fed chairman thinking long-term, or only until the elections in November? Does that question nag at anyone but me?

Next, Phyllis Schlafly asks questions which nagged at me as I read Hazlitt’s chapter on tariffs. She answers some of my concerns that free trade does not exist with countries which use slave labor and whose industries are heavily subsidized by their tyrannical or socialist governments. Libertarians with a big “L” seem to ignore these concerns and have a utopian idea that it will all balance out in the end. While I wish the citizens of other nations well, my primary concern is that Americans would benefit from their hard work and ingenuity, not see their jobs and factories migrate to other places while needing to fund the indigent (yes, I know not all of them are indigent) who illegally migrate here. Trade agreements have to have a level playing field to be truly free.

Last, Lew Rockwell addresses the notion that spending ourselves out of a recession is a good idea by comparing common sense in the family economy to the nation’s economy, something someone somewhere in this discussion brought up. If he thinks you can make parallels between microeconomics and macroeconomics, perhaps it’s not such a silly idea after all. If we do get a “tax refund” in the mail, we may stubbornly stick it in a savings account, though some may also go to help Persecution Project which helps people whose economic woes involve starvation and death from an evil government, not whether they can afford big-screen TVs.

I am still Pollyannaish enough to think our government’s problems are more due to stupidity than evil. I hope I’m right.

(Don’t forget to keep up with the economics discussion via Cindy’s blog.)