One of the fundamental fallacies of economics is called the "broken window" fallacy. It's used to justify all manner of government job-creation schemes, and it betrays a fundamental ignorance of basic economics. It goes something like this: "Riots or natural disasters are good for the economy, because they create jobs replacing the broken windows, and repairing broken buildings and infrastructure."

The fallacy comes, of course, from ignoring the cost of the destruction. Which country would have more wealth: one that builds ten cities, or one that builds, destroys, and rebuilds the same city ten times?

The same resources are required in both cases, and just as many "jobs" are "created." In fact, in the second scenario, even more "jobs" are "created" than the first, because we have a full employment program for city demolishers, as well as city rebuilders. Now, of course, when a hurricane hits Florida, and federal aid comes in, it does temporarily improve the "economy" of Florida, in the sense that there are new jobs that need to be filled, but it comes at the cost of damaging the national economy, by taking resources that could have otherwise been employed in creating new things, rather than restoring old.

The same logic would also dictate that a farmer, rather than waiting until fall to harvest his crop, should instead hire many more laborers, and every week, plow under the plants and replant the fields. I hope that these illustrations are sufficient to demonstrate that neither natural or human-caused disasters are good for economies.

Unfortunately, many well-meaning space advocates make a similar error when they argue thusly: "People shouldn't complain about all the money that goes into space. Not a single dime goes into space. It all stays here right on the ground, providing jobs for scientists and engineers, who then spend their salaries on the local economy." There was even a Chase Econometrics study performed back in the early eighties, which many activists continue to cite, that came up with a "multiplier effect" of something like fourteen times, for the benefit of spending money on space activities.

The problem with such analyses is that they don't consider the opportunity costs. It's possible, even likely, that money spent by private individuals, pursuing their own ends, would have an even higher "multiplier effect." And in terms of the money being recirculated in the economy, that will happen regardless of what the scientists and engineers do, even if they sit home and do nothing, as long as they get paid.

It is not sufficient to say that we are creating jobs. We have to ask, are we creating wealth? Unfortunately, while that occasionally happens with government space expenditures, most of the time, it does not, and to the degree that we do produce useful things with NASA funds, it is done very inefficiently, because of the need to satisfy political imperatives. And until we recognize space as a potential new venue for the creation of wealth (as opposed to "exploration" and "science" and "international cooperation"), it will not be possible to raise the private investment funding needed to actually achieve that potential.

While I agree with you on the "broken window" aspect of government spending (Walter Williams had this very column months ago) sometimes government must spend for the "public good". Returns on this spending may never be realized, (i.e defense spending, one hopes) or realized so far into the future as to prevent private enterprise from undertaking the task. I believe space exploration is currently in that realm.

It is the notion of space as "exploration" that holds it back. Until we start to think of it as space exploitation, we are likely to make little progress.

Are there 2 "broken Window" concepts? I always understood that term to be addressing the physical deterioration of a neighborhood as a prelude to petty crime, etc. I thought that Rudy Guilani's first term crackdown on petty crime and violations was a result of this. I believe the theory was advanced by Professor Wilson (there are two with similar names and I can't recall the full name.) I googled and found this reference:
The beauty of this theory is that it fits perfectly with the already proven policing strategy known as "fixing broken windows." The idea behind this strategy, championed by Professor James Q Wilson of UCLA, is that a broken window that goes unfixed leads to less respect for the local area and more disorderly behavior, which results in more broken windows and a vicious circle resulting in an ever higher crime rate. Police and local communities should therefore work to "fix broken windows," reducing disorderly behavior and civilizing the area. The crime drop seems to have led to a civilizing process of its own.

Yes. You're describing the "broken window" theory (also known as the "graffiti theory.")

I'm talking about the "broken window" fallacy.

The 'broken window fallacy'is from Bastiat. The essay can be read here (sorry, you'll have to cut'n'paste the link):

http://www.econlib.org/library/Bastiat/basEss1.html#Chapter 1, What Is Seen and What Is Not Seen

Enjoy!

Glenn

Yes, Bastiat pretty much (literally) wrote the book on fallacies in economics. It's too bad that he's not always required reading.

I agree with the specifics in first part of the opinion in the relation to the destruction of existing "wealth". Applying the concept to "opportunity cost" creates some concern to me. Generally economists prefer to use what is measurable rather than speculative. I agree that political statements regarding the economic benefits of space exploration in terms of job creation are misleading. However, to say that money in the hands of private indiviuals can be challenged. Typically, individual choices tend to support short term, certain benefits. The US has a low savings rate which is not conducive to the low rates of return required for private industry to take on the risks involved to produce "wealth" from space. Government sponsorship of programs with tax dollars and sovereign debt at low interest rates.

For example, the discovery of the New World in the fifteenth century was a government funded venture that taxed the navigation technology at the time. The explores had a sense and proof that the world was round and not flat. They did not have a reasonable means to determine their westward travel nor of the exsistence of the American continents at the time. Clearly, private industry did not take over the further exploration of the New World until economic justification with reasonable risk was shown. Now, if the King Ferdinand and Queen Isabella did an "opportunity cost" comparison of the unkown risks of the venture to the known benefits and risks of someother use for the men and ships, the discovery would have been delayed. Yes, they did by into the shorter root to the Far East idea but no one had a clue if a ship could have made the trip even if the American continents did not exsist.

Similarly, the point of current space exploration is to develop the technology for space exploration as well as understanding the risks and economic benefits. Usually an opportunity cost argument works better when the comparisons are similar. When dissimilarity in risks and unkown economic benefits come into play, opportunity cost may lead one to a poor choice. Obviously, we could unleash the talents of the scientists and engineers with that capital to solve problems with more immediate economic benefits and creation of wealth. What we would lose is the potential of a much larger creation of wealth from something we do not know about. Imagine the total wealth of the world if there the Americas were not here.

I'm not arguing against government space exploration per se. I am saying that we are beyond the Ferdinand and Isabella stage, and have to start thinking more of actual exploitation. But most discussions about NASA, and its charter, not updated since the founding in 1958, remain mired in this past.

Down with the 1967 Outer Space Treaty!