Grabowsky’s Broken Window
Neil’s paying, so keep reading.
The “Broken Window Fallacy” is one of the most persistent myths in any popular discussion of economic issues. Simply put, it is the notion that a broken window such as Neil’s is good because it gives the window guy a.k.a. glazier money who in turn can afford to buy shirts from a guy like me and take his family out to dinner, etc. See, we all win.
So why not just break all the windows downtown and we will all be better off? This of course, is absurd, but this fallacy persists in popular discussions, in all manner of subtle ways and not so subtle ways in current government policies.
The least subtle example of the broken window fallacy is the case of war. How often have we heard that “war is good for the economy”? Or that “war ended the depression.”
War is never good for the economy, but rather, it is good for narrow special interests like Halliburton or General Electric. War destroys lives and property, but yet the myth persists. We always have to consider what would have been done with citizens’ lives, liberty, and property in lieu of squandering it on foreign intervention and murder.
The $5 phrase that economists use to describe this phenomenon and cause student’s eyes to glaze over is “opportunity cost.” Frederic Bastiat originally wrote about the parable of the broken window in his 1850 essay, “That Which Is Seen, and That Which Is Not Seen” and Henry Hazlitt expanded on it in his 1946 book Economics In One Lesson, both are worth making the time to read.
Once you get a good understanding of the fallacy of the broken window and how special interests benefit from government at the expense of everyone else, it is much easier to be on the alert for it in current discussions and to counter it in debates. Every dollar spent by the government is necessarily taken from other productive uses in the economy. There are very few services that the government should be providing outside of defending the lives, liberty, and property of citizens.
Private initiative, the free market and the profit motive are responsible for much of the progress of civilization, like it or not. Government by comparison, is responsible for over 260 million civilian deaths in the 20th Century alone. Somehow, the risks associated with an unregulated toaster pales in comparison.
All of the hidden costs associated with government spending and legislation need to be considered and rarely are when discussing public works and hiring more government employees, government subsidies, minimum wages, rent control, building codes, green jobs, government imposed efficiency standards, tariffs and the Federal Reserve’s inflationary policies, just to name a few.
Well, there you go Neil, we have made lemonade out of your shattered glass.