He’s my second favorite economist, right behind Thomas Sowell.
In his latest column, he explains the famous “Broken Window Fallacy”.
Excerpt:
Economic lunacy abounds, and often the most learned, including Nobel Laureates, are its primary victims. The most recent example of economic lunacy is found in a Huffington Post article titled “The Silver Lining of Japan’s Quake” written by Nathan Gardels, editor of New Perspectives Quarterly, who has also written articles for The Wall Street Journal, Los Angeles Times, New York Times and Washington Post.
Mr. Gardels says, “No one — least of all someone like myself who has experienced the existential terror of California’s regular tremors and knows the big one is coming here next — would minimize the grief, suffering and disruption caused by Japan’s massive earthquake and tsunami. But if one can look past the devastation, there is a silver lining. The need to rebuild a large swath of Japan will create huge opportunities for domestic economic growth, particularly in energy-efficient technologies, while also stimulating global demand and hastening the integration of East Asia. … By taking Japan’s mature economy down a notch, Mother Nature has accomplished what fiscal policy and the central bank could not.”
[…]Why might Japan’s and Florida’s devastation be seen as “pluses”? French economist Frederic Bastiat (1801-1850) explained it in his pamphlet “What is Seen and What is Not Seen,” saying, “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
Bastiat elaborated further in his “Broken Window Fallacy” parable where a vandal smashes a shopkeeper’s window.
A crowd forms, sympathizing with the shopkeeper. Soon, someone in the crowd suggests that instead of a tragedy, there might be a silver lining. Instead of the boy being a vandal, he was a public benefactor, creating economic benefits for everyone in town. Fixing the broken window creates employment for the glazier, who will then buy bread and benefit the baker, who will then buy shoes and benefit the cobbler and so forth.
Bastiat says that’s what’s seen. What is not seen is what the shopkeeper would have done with the money had his window not been smashed. He might have purchased a suit from the tailor. Therefore, an act that created a job for the glazier destroyed a job for the tailor. On top of that, had the property destruction not occurred, the shopkeeper would have had a suit and a window. Now he has just a window and as a result, he is poorer.
More than 77 government welfare programs—which are spread across several federal departments and provide cash, food, housing, medical care, and targeted social services to poor and low-income persons—are “means-tested.” That is, beneficiaries qualify if they are below a specified income level.
Regardless of their intention, means-tested programs by their very nature pose disincentives for households to increase their incomes and risk termination of their benefits. Thus, the welfare system effectively set up roadblocks to the two main avenues for economic progress: marriage and employment. A single mother would be ensured of her benefits package as long as she did not take a job or marry an employed husband. Given this scenario, it’s not surprising that dismal societal trends have followed.
Unwed childbearing is the major cause of child poverty in America. Since 1965, the rate of unwed births has soared from 7 percent to 39 percent (and among blacks, to 69 percent). Children born and raised outside marriage are nearly seven times more likely to live in poverty than children born to and raised by a married couple. Moreover, unwed childbearing is concentrated among low-income, less educated women in their early 20s—those who have the least ability to support a family by themselves.
Low levels of parental work is the second major cause of child poverty in the United States. In a typical year, only about one-fourth of all poor households with children have combined work hours of adults equaling 40 hours a week. The typical poor family with children is supported by only 800 hours of work during a year, an average of 16 hours of work per week. If work in each family were raised to 2,000 hours per year—the equivalent of one adult working 40 hours per week through the year—nearly 75 percent of poor children would be lifted out of poverty.[6]
Marriage and one parent working = no child poverty. Why is government undermining that? Because broken homes produce children that require government intervention = more government = higher taxes = greater “equality” of wealth through government-run redistribution.
The article explains several government policies that would reduce dependency on government.
Richards explains:
The Welfare Reform Act of 1996 reduced some of these damaging incentives in one major program, Aid to Families with Dependent Children. Under AFDC, states were given more federal funds if their welfare caseloads increased, and funds were cut whenever the state caseload fell. In other words, states were basically encouraged to swell their welfare rolls.
Welfare reform replaced AFDC with a new program, Temporary Assistance to Needy Families (TANF), which provided incentives to move recipients toward self-sufficiency. Funding to each state remained constant regardless of the size of caseloads, and states were allowed to retain savings from caseload reductions.
In addition, states were required to have at least half of their welfare recipients engaged in work or activity that would prepare them for employment. Rather than anticipating depending on the government indefinitely, recipients were limited to five years on the welfare rolls. (Under the old AFDC program, recipients spent an average of 13 years on the rolls.) These reforms in funding structure and incentives made a substantial difference.
Despite dire predictions by opponents of reform that work requirements and benefit limitations would lead to a surge in poverty, just the opposite occurred. States had the flexibility to design programs that best fit the needs of their constituents. State welfare agencies were transformed overnight into job placement centers, while social workers helped recipients access child care, housing, transportation, or other support that was necessary to move them into jobs and toward self-sufficiency.
Within 10 years, welfare caseloads shrank by more than half: 2.7 million fewer families were dependent on welfare checks. As the welfare caseloads fell, the employment of single mothers surged upward, and 1.6 million fewer children were living in poverty.[7] In 2001, despite the recession, the poverty rate for black children was at the lowest point in America’s history.[8]
Unfortunately, Obama rolled back welfare reforms in order to incentivize people to go back onto government dependence.
Keep in mind that Arthur Brooks of the AEI has shown that the amount of wealth a person has (over the poverty level) is not what makes them happy. What makes a person happy (above the poverty level) is that a person is making their own way and earning their own bread by their own work. That’s what makes people happy.
The Census data presented so far demonstrate that married couples have dramatically lower poverty rates than single parents. These substantial differences in poverty remain even when married couples are compared to single parents of the same race and level of education. The pattern is almost exactly the same in all 50 states.
However, in the Census comparisons, the married couples and single parents are obviously different (albeit similar) persons. It is therefore possible that much of the difference in poverty between married families and single-parent families might be due to hidden differences between married and single parents as individuals rather than to marriage per se. For example, it is possible that unmarried fathers might have substantially lower earnings than married fathers with the same racial and educational backgrounds. If this were the case, then marriage, for these men, would have a reduced anti-poverty effect.
Fortunately, we have other direct data on poverty and unmarried parents that corroborate the Census analysis. These data are provided by the Fragile Families and Child Well-being Survey conducted jointly by Princeton and Columbia universities.[16] The Fragile Families survey is a representative national sample of parents at the time of a child’s birth, with a heavy emphasis on lower-income unmarried couples. The survey is unusual in collecting information not only on single mothers, but on non-married fathers as well, including (critically) the actual employment and earnings of the father in the year prior to birth.
Because the Fragile Families Survey reports both the mothers’ and fathers’ earnings, it is simple to calculate the poverty rate if the non-married mothers remain single and if each unmarried mother married her child’s father (thereby pooling both parents’ income into a joint family income). The Fragile Families data show that if unmarried mothers remain single, over half (56 percent) of them will be poor. (This high level of poverty will persist for years: Half of all unwed mothers will be poor five years after the child is born.[17]) By contrast, if the single mothers married the actual biological fathers of their children, only 18 percent would remain poor.[18] Thus, marriage would reduce the expected poverty rate of the children by two-thirds.
It is important to note that these results are based on the actual earnings of the biological fathers of the children and not on assumed or hypothetical earnings. Moreover, the non-married fathers in the sample are relatively young. Over time, their earnings will increase and the poverty rate for the married couples will decline farther.
[…]Census data and the Fragile Families survey show that marriage can be extremely effective in reducing child poverty. But the positive effects of married fathers are not limited to income alone. Children raised by married parents have substantially better life outcomes compared to similar children raised in single-parent homes.
When compared to children in intact married homes, children raised by single parents are more likely to have emotional and behavioral problems; be physically abused; smoke, drink, and use drugs; be aggressive; engage in violent, delinquent, and criminal behavior; have poor school performance; be expelled from school; and drop out of high school.[19] Many of these negative outcomes are associated with the higher poverty rates of single mothers. In many cases, however, the improvements in child well-being that are associated with marriage persist even after adjusting for differences in family income. This indicates that the father brings more to his home than just a paycheck.
The effect of married fathers on child outcomes can be quite pronounced. For example, examination of families with the same race and same parental education shows that, when compared to intact married families, children from single-parent homes are:
More than twice as likely to be arrested for a juvenile crime;[20]
Twice as likely to be treated for emotional and behavioral problems;[21]
Roughly twice as likely to be suspended or expelled from school;[22] and
A third more likely to drop out before completing high school.[23]
The effects of being raised in a single-parent home continue into adulthood. Comparing families of the same race and similar incomes, children from broken and single-parent homes are three times more likely to end up in jail by the time they reach age 30 than are children raised in intact married families. [24] Compared to girls raised in similar married families, girls from single-parent homes are more than twice as likely to have a child without being married, thereby repeating the negative cycle for another generation.[25]
Finally, the decline of marriage generates poverty in future generations. Children living in single-parent homes are 50 percent more likely to experience poverty as adults when compared to children from intact married homes. This intergenerational poverty effect persists even after adjusting for the original differences in family income and poverty during childhood.[26]
You should definitely click through the article and view all the colorful charts and diagrams. This article should be printed out and used to explain the connection between fiscal conservatism and social conservatism.
I also want to point out that two notable groups on the left act to destroy marriage. First of all, there are the feminists, who oppose the unequal gender roles in marriage. They lobby for feminist policies that destroy marriage, like no-fault divorce. Second, there are the socialists, who favor redistribution of wealth from productive to non-productive people. They lobby for increased welfare for single mothers, causing more single-mother households. Either way, marriage is under attack by the left. I have not even mentioned things like sex education and state-run day care.
What should the government do?
I think that government does have a role in providing financial incentives in the form of tax breaks to married couples who have children and stay married. The government should give bigger and bigger tax breaks as marriages last longer and longer, and have more children. And the biggest tax breaks of all should be given to families where one parent stays at home while the children are not yet in school, during the crucial early years. Sounds crazy, doesn’t it? But if research agrees that marriage is good for children, good for married couples, and good for society, then why aren’t we doing more to inform people about the benefits of marriage, and providing them with financial incentives to marry for the long-term?
WINTERY KNIGHT 