Sundakov slams shut emissions trading's broken window
I'm very pleased to add one more local economist to the list of those who understand the 'Broken Window Fallacy.' Alex Sundakov of Castalia completely dismantles the dripping wet nonsense put out by the NZ Business Council for Sustainable Development that the Emissions Trading Schemes proposed by both major parties will "lead to economic benefits in the form of new investment, jobs and wages." As Sundakov points out,
the claim that “creation” of jobs and investment in particular sectors and industries under the scheme equates to an economic overall “benefit” reflects a lack of basic economic literacy.Bravo, sir! If only more economists understood the 'Broken Window Fallacy' and were prepared to point out basic economic literacy when they see it, we'd be living in a wealthier instead of a wetter place. As Henry Hazlitt says, "Economics is haunted by more fallacies than any other science known to man [most of them demonstrated on the front page of any newspaper you care to pick up."
“Workers and capital will not magically appear following the introduction of an emissions trading scheme, rather some capital and employment will be reallocated to different areas as relative prices change.”
“If that capital and employment is reallocated to areas of lower economic return or if the policy encourages “new” investment by artificially shortening the economic life of existing assets, that must be wasteful on economic grounds”.
Alex Sundakov points out that, under the logic applied by the Business Council for Sustainable Development, a Government policy that required every homeowner to demolish and then rebuild their family home would create economic “benefits”. Replacement of destroyed property would require investment and employment. “But it’s fairly obvious such a policy doesn’t make economic sense. In a fully employed economy, resources would simply be sucked away from areas where they can be used far more efficiently and contribute more to building New Zealand’s wealth.”
The whole of economics can be reduced to a single lesson, and that lesson can beNB: Read Frederic Bastiat's entertaining essay That Which is Seen and That Which is Not Seen in which the parable of the broken window originally appears, and Henry Hazlitt's use of it in his book Economics in One Lesson.
reduced to a single sentence. The art of economics consists in looking not merely
at the immediate but the longer effects of any act or policy; it consists in tracing
the consequences of that policy not merely for one group but for all groups.
|Economics in One Lesson: 50th Anniversary Edition |
by Henry Hazlitt
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