Jack Layton and the Broken Window Fallacy

Most politicians have little or no grasp of elementary science. Many have little or no grasp of elementary economics. And some manage to lack a grasp of either science or economics. Case in point, Jack Layton: the NDP’s recently released “Kyoto Plan” is a veritable tour de force in fallacious environmental and economic thinking.

First, the science. Whether or not one believes that human action is causing and/or will cause dangerous climate change, Kyoto is not a rational response. As numerous scientists and economists have explained, complying with Kyoto offers virtually no environmental benefit. If every country in the world fulfilled their Kyoto “obligations” completely it might avert global warming by about fifteen-hundredths of one degree Centigrade in the year 2100, an environmentally negligible accomplishment.

Scientists alarmed by the threat of climate change have observed that it would take over 30 Kyotos over the next century to “control” the climate. But given that the United States, Australia, and most of the developing world has shown absolutely no willingness to accept greenhouse gas reduction targets, the argument that Kyoto is a “first step,” is either ludicrous, delusional, or both. At the same time, most reputable (non-governmental) economic estimates of the cost of compliance with Kyoto suggest a loss of around 4 percent of Canada’s Gross Domestic Product in every year beyond 2010, which takes us to the economics.

As bad as the fallacious scientific thinking of Layton’s Kyoto plan is, the economics are even worse. According to Jack Layton, the plan will create 800,000 person-years of work, by creating jobs primarily in the construction, transit, and energy sectors. But the idea of government job creation runs afoul of the Broken Window Fallacy, explained by Frederic Bastiat (a Frenchman!) all the way back in 1850. Bastiat related the fallacy as follows: imagine some shopkeepers get their windows broken by a rock-throwing child. At first, people sympathize with the shopkeepers, until someone suggests that the broken windows really aren’t that bad. After all, they “create work” for the glazier, who might buy food, benefiting the grocer, or clothes, benefiting the tailor. If enough windows are broken, the glazier might even hire an assistant, creating a job. Did the child then do a public service by breaking the window? No. That’s because what’s not seen in this scenario is what the shopkeepers would have done with the money that they’ve had to use to fix their windows. If they hadn’t needed to fix the windows, the shopkeepers would have put the money to work in their shops, buying more stock from their suppliers, or perhaps adding a coffee-bar, or hiring new stockpeople. Before the child’s action, the shopkeepers had their windows and the money to hire a new assistant or buy more goods. After the child’s action, the shopkeepers have their new windows but no new assistant and society, as a whole, has lost the value of the old set of windows.

Logic would suggest that anyone accepting the idea that destruction of capital is a good for the economy would also have to conclude that war, natural disaster, and crime are also good for the economy.

Layton’s Kyoto plan throws its bricks into the windows of the taxpayers, traditional energy companies, homebuilders, automobile companies, and others, “creating jobs” in the alternative energy, home-renovation, and mass-transit sectors. Some of the bricks lobbed about by the Kyoto Plan include jacking up the cost of housing by requiring new homes to install expensive energy-saving materials; jacking up the cost of appliances and lighting by requiring compliance with the “Energy Star” standard; jacking up the cost of energy by subsidizing inefficient forms of energy such as wind-power, while erecting hurdles to conventional fossil fuel energy provision; jacking up the cost of transportation by dumping new fuel efficiency requirements onto automakers, further subsidizing mass transit at motorist expense; and jacking up the cost of government by requiring federal government and Crown corporations to adopt expensive technologies to reduce energy consumption.

Mr. Layton may talk about poverty relief, but by making it more expensive to build a house, or cook a meal, or drive to work, he’s clearly failing to walk his talk.

At the end of the day, the NDP’s Kyoto Plan would impose higher costs across the Canadian economy for no environmental benefit. One hopes that Mr. Layton is unable to infect the delicate minority Liberal government with the fallacious reasoning in his Kyoto Plan, or we’ll be living with broken windows for some time to come.