Transcript for The Broken Window Fallacy

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... and it took enormous public works program known as World War II

to bring the economy out of depression

Ghastly as it may seem to say this, the terror atack -

like the original day of infanny which brought an end to the Great Depression

- could do some economic good - Paul Krueman po 11. září 2001

Frédéric Bastiat:

Broken window fallacy

What is the broken window fallacy?

It all starts when hulligan decides to throw a brick through the bakers window

The comunnity gathers at the backery

to discuss what has happened.

I feel bad for that poor baker

he has lost a window

It is true, but if you stop and think about it

maybe it is not all that bad

After all the baker does have to repair its window

which means the glassier will now have work to do

After getting paid the glassier will probably spend his new income on some of your crops

Then you will have income to spend and some even more goods and services

You are right - the hooligan has actually stimulated the economy

Imagine how many more jobs could have been created

if the hooligen have done more damage

Have you all lost your minds?

Haven't you all read Frederic Bastiat's or Henry Hazlitt?

You are only focusing on what is seen

The money I will spend repairing the broken window

While you ignore what's unseen

The money would have spent on a new suit

If I have bought my new suit from the tailer

He would have also spend his income to spend on some of your crops

So you still would have had more income on other goods and services

The only difference is that I would have had both my window and a new suit

whereas now I only have a window

This hooligan has cost me and thus our community a new suit

The story of the holigan shows us that physical damage destroys wealth.

After all if the holigans act actually did stimulate the economy

then society would have been better of it he had destroyed the sign, the building and the rest of the town.

But the broken window fallacy is much more prevalent that it may first seen

In fact it remains in the core of mainstream policy making.

For example when goverment claims to create jobs by financing public works programs

such as construction.

It does so at the expanse of its citizens in a form of either higher taxes or inflation

The citizens would have spend their tax dollars on other goods and services

like refridgerators or surfboards or movie tickets

which would have increased job growth in those industries

Because these good will never however these potential jobs remain unseen.

But they are no less real and no less important as the jobs that we do see

So if you ever hear of the stimulating of war time spending, tariffes or stimulus bills

Note that this is merely our old friend - the broken window fallacy - dressed in new cloathing and grown fat

dressed in new cloathing and grown fat beyond recognition - www.mustwatch.eu