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The Broken Window Fallacy

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Natural disasters, terrorist attacks and wars have one thing in common: They have all a lot of destruction. But every time when there is a natural disaster or a terrorist attack or a war, you can be virtually garanteed that someone is gonna come along and say that there is a silver line in all of this. It's good for the economy, because it's gonna create jobs. When there is a natural disaster or a terrorist attack or a war, we have to spend money replacing all the stuff that we destroyed. This is an application of we call "The broken window fallacy". Frédéric Bastiat corrected this fallacy in his early 19th century esey "That which is seen and that which is unseen" The key point is that destruction does not create prosperity. Destruction destroys prosperity. Imagine some who owns a shop. Shop has a glass window. Now kid comes along and throws a rock through the window. So the window is broken. Shards of glass everywhere. Shop keeper is upset. Why? Because the window's been broken. Thus he's going pay the glassmaker in order to get the window replace. Now, some people might come along and say: "No, look, you should be smiley, because this is gonna create jobs. You spent money on new glass. The glassmaker earns his money. He can then spend it in restaurants. He can spend it on new clothes. He can spend it on somenthing he likes. That's gonna create jobs for other people! This money gonna circulate and we all gonna be richer, as result of effect, that this kid throwen a rock through window and now we had replaced window. Let's think for a moment about what the policy prescription would be if it were in fact true. That this is a good idea. What we should do? Instead of trying prevent people from breaking things? Instead of trying prevent people from destroying property? We should in fact be enlisting armies of kids with rocks for going around and breaking windows to destroy things. Because after all if this would require new spending that would makes us richer, that would makes us better off. That would be the path of prosperity - destroying things, breaking things and then spending money to replace them. What would do if we indulge in this kind of thinking is a focusing our attention of what is seen, but we're not taking account what is not seen. What we don't see is what the shopkeeper would have used that money for if he hadn't replace the window. He might it used to buy a suit. This would create an opportunity for a tailor. The taylor then could spend the money on something else. He could it used it to buy groceries, this would create an opportunity for grocers. May be he would saved it, then the money could be lend to someone who wants to start new business. He could done something else, that would create a new job opportunities for other people. The world would have still the window and would have the benefit of all of this additional activity, that would have gone on had the window not broken on the first place. On net, society is worse off to the tune of one window. Whenever we actually destroy resources, that's precise what we are doing: We're destroying stuff! We're not creating wealth. It's important to remember, it is production that creates prosperity and not destruction!

Video Details

Duration: 3 minutes and 11 seconds
Country: Czech Republic
Language: English
Producer: LearnLiberty
Director: LearnLiberty
Views: 125
Posted by: smtex on Jun 29, 2011

Does destruction create jobs? After natural disasters, terrorist attacks, and wars, some people argue that these disasters are good for the economy, because they create jobs and prosperity. As Prof. Art Carden of Rhodes College explains, this is an example of the "broken window fallacy," a term coined by Frederic Bastiat. When a shopkeeper's window is broken, he will spend money on a new window, which gives income and jobs for glaziers. This activity is "seen," but the "unseen" is just as important: the money spend on a new window could have been spent on other things. Wealth has not increase, but only reallocated from some people to others, and society is worse off by one window.

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