The Fallacy of the Broken Window

The Senate will likely pass its version of the new “stimulus” bill in the next few days. It seems a good time to remember (or introduce to some) the Fallacy of the Broken Window.

Created by Frédéric Bastiat in 1850, the Fallacy of the Broken Window has been used countless times to demonstrate that government intervention in the economy is useless at best, harmful at worst. Henry Hazlitt devoted a chapter to Bastiat’s fallacy in his book Economics in One Lesson. Here is Hazlitt’s version:

 

from ECONOMICS IN ONE LESSON  by Henry Hazlitt
Chapter II, “The Broken Window”
_________

   A young hoodlum, say, heaves a brick through the window of a baker’s shop.  The shopkeeper runs out furious, but the boy is gone.  A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies.  After a while the crowd feels the need for philosophic reflection.  And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side.  It will make business for some glazier.  As they begin to think of this they elaborate upon it.  How much does a new plate glass window cost?  Two hundred and fifty dollars?  That will be quite a sun.  After all, if windows were never broken, what would happen to the glass business?  Then, of course, the thing is endless.  The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum.  The smashed window will go on providing money and employment in ever-widening circles.  The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor. 

 Now let us take another look.   The crowd is at least right in its first conclusion.  This little act of vandalism will in the first instance mean more business for some glazier.  The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death.  But the shopkeeper will be out $250 that he was planning to spend for a new suit.  Because he has had to replace the window, he will have to go without the suit (or some equivalent need or luxury).  Instead of having a window and $250 he now has merely a window.  Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit.  If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer. 

   The glazier’s gain of business, in short, is merely the tailor’s loss of business.  No new “employment” has been added.  The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier.  They had forgotten the potential third party involved, the tailor.  They forgot him precisely because he will not now enter the scene.  They will see the new window in the next day or two.  They will never see the extra suit, precisely because it will never be made.  They see only what is immediately visible to the eye.*

source link: http://freedomkeys.com/window.htm

  Basic economics does not have to be so terribly difficult to understand. The problem is that we have been immersed in the hare-brained theories and intellectual gymnastics of Keynsian and Chicago School economists for far too long. But you have a choice. If you read, instead, the Austrian School economists, you will likely find that you do understand basic economics because it makes perfect sense.

In his talk at the 2008 Mises Circle, Lew Rockwell said:

When people hear the words monetary policy, they figure that this is something they will leave to experts. And central bankers have an astonishing talent for obfuscation to the point that no one knows with certainty precisely what they are doing.

The whole show is designed to make us go to sleep and not think about what is really going on.

 Isn’t it about time we wake up and begin to understand what our government is doing with our money, our children’s money, our grandchildren’s money?  Consider the following, also from Lew Rockwell’s 2008 Mises Circle talk:

I ask you to consider the absurd discussion of a stimulus package designed to rescue the economy from recession. The idea is that the government will inject funds into private markets to stimulate them to the point that they will run on their own. Not once in this debate have I heard anyone ask the core question: where is this money going to come from?

It seems that Washington wants us to believe that they have some magic machine that can turn up $150 billion in new assets without anyone having to do anything to make these assets appear. One wonders, then, why we need to wait until a recession to stimulate the economy. Why not magically create hundreds of billions every day, and not just for this country but for the entire world? Why are we holding back?

It is probably too late to prevent this new “stimulus” from becoming law, but if we do not educate ourselves now, share our knowledge with others and let our politicians know that we have awakened,  this misguided spending will happen again and again until America falls as surely as Rome fell.

Read the articles linked in this post. Go to http://www.mises.org/ and http://www.lewrockwell.com/. Learn to see that which is not seen.

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