“The Broken Window Fallacy”

Thoughts on a Free Market Economy…

“The Broken Window Fallacy”

By Phyllis Hunsinger

June 1, 2019

The broken window fallacy was first expressed by the great French economist, Frederic Bastiat, born June 29, 1801, and died Decembeer 24, 1850. Bastiat used the parable of a broken window to demonstrate why destruction does not benefit the economy.

In Bastiat’s parable, a young son breaks a pane of glass, meaning the father will have to pay to replace the broken window. The onlookers, and perhaps the boy’s mother, consider the situation and decide that the boy has actually done the community a service because his father will have to pay someone to replace the broken window. The repairman will then presumably spend the extra money on something else, which will actually help the local economy.

The onlookers come to believe that destruction can stimulate the economy, but Bastiat shows them upon further analysis, this idea is a fallacy. By breaking the window, the man’s son has diminished his father’s disposable income. This results in the father not being able to purchase other items he may want or need such as new shoes, furniture, or some luxury item. Although the broken window does help the window repairman, it robs other industries and reduces the amount being spent on other goods. Replacing something that has already been purchased is a maintenance cost. Bastiat points out that maintenance costs do not stimulate production, and destruction does not pay off in an economic sense.

The broken window fallacy is often used to discredit the idea that going to war stimulates a country’s economy. The analogy is the same as the broken window: war causes resources and capital to be funneled out of industries that produce goods to industries that destroy things. The rebuilding that occurs after war is primarily maintenance costs, and overall, the economy has not been stimulated.

The broken window fallacy is a result of making a decision by looking only at the parties directly involved. The problem with most government edicts is similar to the broken window fallacy in that the short-term consequences are all that are considered. Failure to consider the decisions on all parties both directly and indirectly involved in the short and long term gives us poor results because of the unintended consequences.

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