Friday, 27 June 2008

Sundakov slams shut emissions trading's broken window

01815-36med 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.
“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.”
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."
    The whole of economics can be reduced to a single lesson, and that lesson can be 
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.
NB: 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.
Economics in One Lesson: 50th Anniversary Edition
by Henry Hazlitt

Read more about this book...


  1. The funniest interpretation of the Broken Window Fallacy, and the initiation of force therein, I read about was Sir Robert Jones saying that the Government could seek to stimulate the economy by requiring everyone to own a parrot.

    It is in his book "Memories of Muldoon" and extremely funny to read.

  2. He's a good man Sundakov. Apart from the fact that he once offered me a job; at the Knowledge Wave Conference several years ago he gave his view on the reason for the strong performance of the economy under Labour: "luck".

  3. Palmerston North is about to be sacrificed to meet emissions targets. Here's something that our local rag the Manawatu Sub Standard won't publish as it's right up aunty Helen's global warming arse. Click on my " name "


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