The broken window fallacy is a classic hurricane-season misstep. “Hurricanes may do damage”, the reasoning goes, “but look on the bright side. Think of how many jobs will be created because of the destruction. Think about all the demand that will be stimulated. Things may look bleak, but this is actually good for the economy.”
Bastiat debunked this reasoning in his 1848 essay “That Which Is Seen and that Which Is Not Seen“, and countless economists since have echoed his remarks. In the essay, he tells the parable of a shopkeeper whose careless son breaks a window, and he asks the reader whether this is good for the economy. At first glance, it’s tempting to say yes. But as Bastiat shows in the story, this conclusion ignores the unseen effects of the broken window.
“If … you come to the conclusion,” he writes, “as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, ‘Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.'”
What is not seen, briefly, is the lost opportunities, the things that could have been done with our resources had they not been needed to replace the broken window. Taking those into account, it becomes clear that the broken window is harmful to the economy. After all, there is now one less window in our stockpile of goods.
The same reasoning applies on a larger scale. There may be plenty of jobs and demand when a hurricane destroys a town, but saying this is “good” for the economy is simply wrong. If this logic were true, the more destruction we experience the better off we’d be! But economic reasoning — and plain common sense — tells us this can’t be right.
Patrick Carroll, “3 Economic Fallacies to Watch Out for during Hurrican Season”, Foundation for Economic Education, 2022-09-30.
January 5, 2023
QotD: The Broken Window Fallacy
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