01 Jul Broken Window Economics Hits LeBron James too!! ??
I just heard some well-meaning but intellectually-challenged sports agent named David Falk on CNBC address the free agency of LeBron James and the huge media buzz that his decision is creating (meaning, the decision as to whether or not he will re-sign with the Cleveland Cavaliers, or instead, as is expected, go out of town to a better situation for himself). Mr. Falk said, and I quote, “I am not saying he needs to make his decision solely on this factor, but he does need to give huge consideration to the economic impact his decision will have on the city of Cleveland. If he leaves, it will have a major effect on Cleveland’s economy.”
Of course, Cleveland might want to give some consideration to what it says that a basketball player may or may not be able to have that big of an effect on their economy. But I digress. The reason I chose to write about this is because Mr. Falk’s line of reasoning is a perfect encapsulation of what is ruining our world in terms of fallacious economic thinking (and policy). Why would LeBron consider what his decision will do the economy of Cleveland, where he may or may not leave, but NOT consider the impact it would have on Oklahoma City, where he likely will not go? If he stays in Cleveland to help their economy, does he simultaneously hurt Miami’s economy, where he could go? Of course. But like Henry Hazlitt pointed out over half a century ago, the propensity for economists to only consider short term effects, or particular effects on one group of people, and to ignore the longer term effects, and other groups of people, is the essence of dangerous economics. The decision to be happy about a brick going through a window at a town retailer because of the business it gives the glazier always has ignored the business NOT going to the tailor because of that expense. LeBron may or may not pick Cleveland, but he could not possibly be expected to make a decision based on the impact his decision to leave would have, for the very reason that he could never be expected to understand what his decision to not go elsewhere would have. This line of reasoning is perposterous on its face, but worse, it distorts price discovery and ultimately damages optimal economic decision-making.
When a sports agent lacks cogent economic thinking the world can keep turning, though. It is those folks on Capitol Hill that need a healthy dosage of Hazlitt. Maybe LeBron should consider Washington DC??