Ce qu’on voit et ce qu’on ne voit pas.
That which we see, and that which we do not see.
As philosophical as it sounds, French economist and parliamentarian,Frederic Bastiat, used this phrase while noting the daily bustle of a street corner back in 1850, to explain a new theory – the Broken Window Fallacy.
This largely unheard of concept rests on the single event of a young boy breaking his father’s shop window while at play on the street. While such a mistake would lead to a harsh scolding from the father, the event also sparks a conversation amongst those present at the scene. Looking at the scene, an optimistic neighbour telling the shopkeeper to not fret over the damage caused, as the broken window now creates a day’s worth of work for the carpenter. In all probability, the carpenter will then use his income to pay the baker, who’s subsequent expenditure will then lead to a virtuous cycle. This came to be known as Broken Window Economics.
Having heard this seemingly rational argument, Bastiat alternatively chose to examine the situation in which the playful boy had not broken his father’s shop window. In such a scenario, the money that the shopkeeper would’ve spent on fixing the broken window would’ve instead been used on an alternative expense, subsequently leading to another virtuous cycle of expenditures.
If this were the case, Bastiat notes that the shopkeeper would have the window and whatever he chose to spend that money on. Whereas, if his son had caused the damage while at play, he is left with just his intact window. Whatever else he would’ve spent his money on is therefore the opportunity cost.
It is important to note that while the total income or GDP of the area in question changes because of the broken window, the community becomes objectively poorer. The boy’s actions force his father to devote his resources in restoring the already existing amount of tangible wealth back to its original state, instead of using the same resources to allow wealth to grow. There is merely a shift in income or employment from one sector or avenue to another. This came to be known as the Broken Window Fallacy.
Take, for example, a situation where a hurricane strikes a city with a large number of unemployed construction workers. Some would argue that the hurricane can be seen positively, as the consequent rebuilding of the city will create ample jobs for the unemployed. However, the question that should arise is – why were there idle resources in the first place? If the reason for that is bad governance, unsatisfactory policies or a sudden unwillingness of people to spend, then forced expenditure due to a disaster won’t fix the labour market.
While this appears to be a fairly straightforward economic argument by Bastia, it raises deeper questions about the type of governance and policies that we see in our country. One can say that many in power today function on a system of Broken Window Governance.
Let’s take a look at the state of Delhi in the past decade or so. The capital’s government currently faces a long list of issues and challenges that need to be tackled with a sense of urgency, including that of water and electricity supply. In the past five years, the government has doled out a string of subsidies and freebies as a way to address shortages and price surges. Meanwhile, citizens purchase water purifiers as a solution to the unavailability of clean drinking water. While this can be seen as an example of vote bank politics, why aren’t the taxes that get lost in subsidies being used to identify and eliminate the real issue behind the shortage and pricing of basic essentials like electricity and water?
We can consider more in detail the issue of air quality in India. It’s now common knowledge that Delhi grabs the topmost stop on the list of most polluted cities in the world. While conditions worsen, the market for air purifiers is booming, with all those who can afford it willing to alleviate the effects of inhaling toxic air to whatever extent they can. This is like fixing the broken window.
Many governments have given subsidies on diesel since farmers largely rely on the fuel for cultivation. Due to irregular and unreliable power supply, many amongst the rich have resorted to relying entirely on generators for electricity – generators that run on subsidized diesel, the burning of which greatly contributes to air pollution. To counter this, air purifiers are bought. Here too, a broken window is being fixed.
Why aren’t sufficient efforts and government funds being directed towards tackling the fundamental issues that necessitate immediate action?
Earlier this summer, the Delhi government put forth a plan to offer free bus and metro rides to all women – a proposition that was probably made keeping in mind the state elections scheduled for 2020. The government had its reasons for suggesting this policy (which is still being debated) and was planning to spend around 1,200 crore rupees on this annually. However, why offer free rides to citizens when the very buses that they are meant to make use of are rapidly dropping in numbers?
In 2001, the NCR had around 3200 DTC buses running in its system. Under Sheila Dixit’s governance, massive investment was made, bringing this number up to around 6200 by 2011 – the highest ever seen. By the time the AAP government took over, around 5400 buses were still in use. Every year, around 500 buses become obsolete, and naturally require replacement. However, in the past 7-8 years, not a single bus has been replaced. By 2017-18, the number of buses plying had once again fallen to around 3800.
When at its peak during the last few years of Dixit’s tenure, DTC buses used to ferry around 46 lakh commuters daily – a number which had dropped to around 27 lakh by 2017-18, despite the constant growth of Delhi’s population.
According to a report by the Environment Pollution Prevention and Control Authority of Delhi, an estimated 11,000 buses are needed in Delhi to meet the demand of its population. Yet, no net additions have been made to the fleet of DTC buses, which now stands at around a mere 3500 in number. Instead, 1,200 crore was going to be spent on bus rides that aren’t even available. One should also note that the same 1,200 crore can be used to purchase around 1000 new buses every year.
While this is probably the nature of governance and policy-making that has been in place for years, questions should be raised on the kind of decisions that our governments and leaders are taking with regards to our tax money and our lives. First, let’s demand better air, better public transport and better budget allocation. Let’s try and keep the window intact, before we run to fix it.
By Padmini Prasad