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Indian Libertarians

Mangalyaan and The Broken Window Fallacy

anacap Friday September 26, 2014

In the midst of all the euphoria over the “success” of Mangalyaan, the Indian Space Research Organisation’s (ISRO’s) mission to Mars, it is important to pause for a moment and understand what it really means from an economic standpoint.

Unlike commonly believed, I do not hold that the “success” of Mangalyaan is something the whole nation should celebrate. In fact, Mangalyaan is just another case of entire populations indulging in The Broken Window Fallacy and forgetting the One Lesson that Henry Hazlitt so beautifully condensed economics into so many years ago.

As always, politicians have been busy breaking windows to stimulate activity in particular sectors without taking into account the real costs of doing so, i.e., the loss in overall social wellbeing caused by their window-breaking. On the other hand, a gullible populace is being led by the nose into believing that all this window breaking is going to make them prosperous indeed. A fair dose of patriotism thrown in makes it a heady concoction indeed. No wonder so many intelligent people are sounding so intoxicated.

The Broken Window Fallacy

The Broken Window Fallacy is a parable first laid out by the great French economist, Frederic Bastiat to highlight the most common error committed in the field of economic reasoning. In that parable, while a baker is berating his no-good son for breaking his shop window, a number of bystanders including some economists comment that there is a bright side to the story, i.e., fortunes to be made in the industry of glass pane makers.

Such thinking is clearly fallacious. It takes into account the increased economic activity in glass pane making. However, it completely ignores the increased economic activity that would have otherwise been witnessed in some other sector, say shoemaking that the baker would have spent his money on. For every unit of income that is created in the glass pane making industry, there is a corresponding unit of income lost in the shoe making industry.

More importantly, the end result when the window is not broken is that the baker has a glass pane AND the shoes, while when the window is broken, he has only the glass pane. Clearly, his wellbeing has been reduced. The window breaking has made him poorer by a pair of shoes.

Mangalyaan and The Broken Window Fallacy

Mangalyaan was a mission launched by the ISRO. It was funded by two means

 

  1. Taxing the Indian public – A visible transfer of resources from the people to ISRO. A window was broken first to make resources available to ISRO.
  2. Inflating money supply – Every unit of new money created steals a bit of the purchasing power of every unit of money already in circulation. This inflation is in reality a stealth tax and is just a cleverly concealed way of breaking windows to hand resources over to ISRO.

What would the public have done had they not been robbed to pay for Mangalyaan? They would have spent the money on consumption or saved and invested it in a line of production that they found most attractive. Can they do that now? Clearly not. The industries that would have benefited by this voluntary consumer spending or investment are going to be hurt. The consumers who would have consumed the output of the sectors where investment would have flowed are hurt by the non-availability of their more highly preferred goods.

Thus we see that Mangalyaan is the equivalent of the stimulus given to the glassmaking industry in Bastiat’s parable. The taxation and inflation constitute the equivalent of the breaking of the window resulting in diversion of the baker’s resources into the glassmaking industry. Like the vandal’s act of breaking the window, Mangalyaan too makes society worse off by destroying wealth in an attempt to promote particular activities favoured by those in power.

In case you feel tempted to point out all the scientific breakthroughs that one can expect from Mangalyaan, just bear in mind that such a possibility is known or knowable to all. In spite of this knowledge, the people preferred not to pay for it. That much is obvious from the fact that they had to be forced to pay through taxation or inflation. This only means that ex-ante, the people preferred something else to paying for Mangalyaan but have been forced to pay for Mangalyaan. Therefore, Mangalyaan has left them holding their less preferred good. This means that overall social wellbeing has been lowered by Mangalyaan. It is one more instance of wanton wealth destruction by government.

An apology

In case this article caught you in the middle of some chest thumping, sorry to be the party pooper. Someone’s got to point out that this emperor has no clothes. Right now, I’ve taken on that job.