Broken Window Fallacy and Obamacare Jobs

The broken window fallacy lies in ignoring hidden damage when counting visible success.

train oil spill

The broken window fallacy is everywhere in economics today. It basically claims that sophisticated economic analysis will see economic good news in economic bad news. One of the older and still-prevalent instances of the broken window fallacy is the claim that World War II ended the Depression. The idea is that all that spending “stimulated” the economy so that businesses grew and thrived from World War II on.

The broken window fallacy gets its name from the story of a window that was broken in a shop. As a result the shopkeeper had to hire a window repair man and purchase some glass to fix his window. Onlookers noticed that the shopkeeper was now giving jobs to people and paying them for products and services. As a result, they would have more money to spend and this would produce new revenue for others.

But this ignores the fact that the shopkeeper could have spent the money on other things if he had been permitted to keep his window in good condition. The onlookers don’t see the coat and shoes that the shopkeeper wanted to buy, but could not purchase because he had to fix his window instead. Economic damage looks like it helps the economy because you don’t see the economic transactions that never take place due to the damage.

Thus, Bloomberg propagandizes for the Affordable Care Act with the headline, “Obamacare Is Spurring Startups and Creating Jobs.”

More than 90 new health-care companies employing as many as 6,200 people have been created in the U.S. since Obamacare became law, a level of entrepreneurial activity that participants say may be unprecedented for the industry.

Zenefits, which provides human-resources software and acts as a health-insurance broker for small employers, wouldn’t exist without the law, said Parker Conrad, the firm’s chief executive officer. Since the Affordable Care Act’s inception in April 2013, the San Francisco-based company has grown to more than 900 employees. That makes it the largest firm among dozens that have sprouted in the law’s wake, according to PricewaterhouseCoopers, which issued a report on the trend this week.

All this tells you is that in the wake of a major economic disruption, some people are finding new opportunities. But it doesn’t give you a clue about how these new jobs compare to the jobs that may have been lost. For example, if Obamacare is closing rural hospitals as reported, then there is no real economic good news in the fact that central city hospitals are picking up more business from long-distant patients.

[See also, “USA Today Spins Coming Obamacare Disaster for Hospitals.”]

The Bloomberg article glosses over obvious questions of political corruption:

The health law, which took full effect in 2014, represents the most dramatic change to the U.S. health system in 50 years. Entrepreneurs, including some from within President Barack Obama’s administration, have founded companies that target employers, health insurers, hospitals, doctors and consumers looking to navigate new requirements and possibilities.

Politicians disrupt the economy and then start companies positioned to benefit from the disruption. This is all good news as far as the media is concerned.