The Broken Window Fallacy is a concept that explains why destroying something or repairing damages does not benefit the economy. This idea was first introduced by French economist, Frederic Bastiat in 1850.
Bastiat first introduced the Broken Window Fallacy in his essay “What is Seen and What Is Not Seen.” In this essay, Bastiat used the example of a broken window to illustrate the fallacy of only considering what is seen.
He argued that to understand an event’s economic impact fully, we must also consider what is not seen. The argument goes that if a townboy breaks a window, his father must pay a glazier to repair it. The glazier will then have money to spend, stimulating the economy. This argument is flawed because it only considers what is seen and ignores what is not seen.
What needs to be seen is that the father now has less money to spend on more important things. If the window had not been broken, the father could have spent that money elsewhere, which would have stimulated the economy just as much, if not more.
The Broken Window Fallacy illustrates the broader principle of opportunity cost: the cost of the next best alternative.
In other words, repairing something that has already been made does not add any value to society compared to creating something new. It only replaces what already exists and diverts resources away from potentially productive uses.
Examples That Debunk the Broken Window Fallacy
Let’s look at a few examples of the broken window fallacy.
- Post-disaster repair may not boost the local economy as resources could have been used for other productive projects.
- War boosts the economy through military spending and job creation but harms it by diverting resources from other productive endeavors and destroying infrastructure and lives.
- Politicians say tax cuts for the rich will boost the economy, but it hurt public services and infrastructure.
- Environmental regulations create jobs and improve health, outweighing the cost burden.
- Security spending after terrorist attacks may not boost the economy and may harm it due to resources being diverted and fear/trauma.
- More law enforcement and prisons don’t guarantee safety or economic growth. Resources should be used for education and job training instead, as high crime rates hurt productivity and increase business costs.
Examples of the Broken Window Fallacy Explained
1. Natural Disasters
After a hurricane or earthquake, people often argue that repairing the damage will boost the local economy. However, this ignores that the resources used to rebuild infrastructure and homes could have been used for other productive projects, and the overall economy is worse off because of the disaster.
War can stimulate the economy through military spending and creating jobs in the defense industry. However, the resources spent on war could have gone towards other productive endeavors, and war destroys infrastructure and human lives, which ultimately harms the economy.
3. Tax Cuts
Some politicians argue that tax cuts for the wealthy will lead to economic growth by encouraging investment and job creation. However, this ignores the fact that tax cuts reduce government revenue, which can lead to cuts to public services and infrastructure. This harms the economy in the long run.
4. Environmental Regulations
Opposition to environmental regulations often cites the cost of compliance as a burden on the economy. However, environmental regulations create jobs in the clean energy and sustainable resource sectors, and the benefits of a healthier environment far outweigh compliance costs.
After a terrorist attack, people often argue that spending on security measures will boost the economy. However, the resources used for security could have been used for other productive purposes, and the fear and trauma of terrorism ultimately harm the economy.
6. High Crime Rates
Some argue that increased spending on law enforcement and prisons will lead to a safer society and economic growth. However, law enforcement and incarceration resources could have been used for education, job training, and other productive projects. High crime rates also increase the cost of doing business and reduce productivity.
Other related fallacies:
The Broken Window Fallacy is an essential economic concept that helps us understand the broader principle of opportunity cost. It reminds us that to understand the impact of an event fully, we must consider both what is seen and what is not seen.
It is a dangerous fallacy that can lead to decisions that harm the economy in the long term. So remember: just because fixing broken things can provide immediate benefits doesn’t mean it’s always the best long-term solution for economic growth.