Broken Window Economics

If we all wear Groucho glasses and a big, fake mustache, can we fool our own economy? We can, says our president.

The Barack Obama Experiment may sound like a 70's lounge band, but it is not. It is, instead a breathtakingly bold, multi-trillion dollar wager on the power of government to arouse an economy. Stay tuned as a Democratic president and congress spend our way to prosperity. In the year ahead, federal spending will touch nearly $4 trillion, a whopping 28% of the all the goods and services produced within America's borders. The president who so often promises change from the failed economic policies of his predecessor is out-Bushing Bush; the Obama deficit will eclipse the last five Bush deficits together.

"Only government can provide the short-term boost necessary to lift us from a recession this deep and severe," Obama says.

Will it work? It has not in Japan, where a similar effort has failed to lift an economy mired in two decades of stagnation. Now, proponents of deficit-induced prosperity wear this fiasco like a flag, arguing the Japanese stimulus was working until the government temporarily abandoned stimulus spending to reduce the deficit in 1997, a full seven years into "The Lost Decade." So let's get this straight: Seven years of massive government borrowing and spending did not work but eight would have delivered?

Or is the lesson simply that when the government spending stops, as it eventually must, the economy stops, too? On this question, we are not in "unchartered waters," as Presidential Advisor David Axelrod suggests. The government stimulus argument has been made and exposed before. In the 1840's, Frédéric Bastiat, a French precursor to the Austrian-school economists, laid the spending-is-stimulus fallacy bare.

"If I throw a brick through my neighbor's window, have I created a job?" Bastiat asked. Democrats today would answer yes, that's a stimulus, because my neighbor has to spend money to pay a repairman to fix the window. That worker now has more money to buy other things, so we have created prosperity.

This newfound wealth, of course, is illusory. The broken window, once repaired, has produced no real increase in the nation's economic assets. For every penny the repairman makes, someone has to borrow or take money out of his pocket to pay for the repair. A dollar, when given to the repairman, has the same value as when taken from the homeowner or businessman with the shattered window. The repairman has more to spend but someone else, inevitably, has less. Yet this is the equation at the heart of the Obama Administration's stimulus package: Under the auspices of a beneficent government, we will break each other's windows until the economy hits escape velocity and we all enjoy greater wealth.

This alleged stimulus, with its false energies, may increase jobs in the short term but it does not increase wealth, no more than heroin cures a hangover. Remember how we got into this mess? We sold worthless mortgages and credit-default instruments to each other. We fooled ourselves for a while. We now propose to fool each other again.

As a Republican who has expressed his hopes that Barack Obama would be a new generation of Democrat, someone who would replace his party's old, industrial-age elitism with the bottom-up prosperity he promised, President Obama's first month in office is a disappointment beyond partisan politics. It displays a self-centered desire for control, an institutional mistrust of the American people and lack of faith in their ability to right this economy. This is just more old-fashioned, trickle-down prosperity from Washington. When it does not work, our president, with the noblest intentions, will pick up another brick and find another window. Without a single real businessman in his Cabinet, there is no one to tell him that our economy, elegant in its complexity, rich in subtle interactions, and abundant with incentives, does not respond well to such primitive manipulation, no matter how smart those throwing bricks.

Through the centuries, eccentric scientists have toiled to invent a perpetual motion machine, a contraption that creates more energy than it produces. In the 17th century, Johann Bessler's "over-balancing wheel," for example, promised to run forever. Bessler could not violate the laws of thermodynamics, however. It turns out we cannot get something for nothing, no matter how good our intentions or how we wish to delude ourselves. The device and its devisor were doomed by physics to fail.