Broken Window Fallacy

Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window. When we arrive at this unexpected conclusion: 'Society loses the value of things which are uselessly destroyed;' and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, 'destruction is not profit.'

In "What Is Seen and What Is Not Seen," Bastiat ... begins with a story of a boy who has broken a window. An onlooker points out the silver lining of the boy's mischief: the glazier will earn six francs plying his trade, his industry thus encouraged. To which Bastiat protests, "That will never do! Your theory stops at what is seen. It does not take account of what is not seen." What is not seen is that had the window not been broken, the six francs would have been available for things that the window-owner must now do without. He is therefore poorer! There is no silver lining.

[I]t could be argued that wars are economically advantageous, that natural disasters such as hurricanes and floods lead to economic growth, and that public works increase employment ... As Bastiat points out, the error in such reasoning is to focus exclusively on the observable events: the production of windows and cannons, people employed in producing such things ... Yet one does not see that, had the window not been broken, had the war not been started, and had the hurricane not destroyed houses, other goods would have been produced, and ... would have added to preexisting wealth.

Bastiat told the story of a youth who broke a shop window. Just as everyone on the street was bemoaning the shopkeeper's misfortune, someone who thought he was an economist found good fortune instead: The shopkeeper will have to buy a new window, which means the glass maker will have more money to spend, and so on ... The fallacy ... is that, had the window not been broken, the shopkeeper would have spent his money in a way that would have made him better off than he was when he awoke that morning. But now he must spend the money just to regain the position he was in before the glass shattered.

Think about it this way. Using Cochrane's statement, if 'from an economic point of view, it [hurricanes] is a plus,' would the country have been even better off if the entire East Coast shared Florida's damage and destruction? If it would have been a plus for the East Coast, what about hurricane destruction for the entire nation east of the Mississippi? Almost anyone with a speck of brains would recognize that equating economic growth with destruction is lunacy. ... Bastiat wrote a parable about this that has become known as the 'Broken Window Fallacy.'

A shopkeeper's window is broken by a vandal. A crowd formed sympathizing with the man. After a while, someone in the crowd suggested that the boy wasn't guilty of vandalism; instead, he was a public benefactor, creating economic benefits for everyone in town. ... What's unseen is what the shopkeeper would have done with the money had the vandal not broken his window. He might have employed the tailor by purchasing a suit. The vandal's breaking his window ... shifted unemployment from the glazier ... to the tailor ... Had it not been for the vandalism, the shopkeeper would have had a window and a suit ...

Paul Krugman writes that even the "broken windows fallacy ceases to be a fallacy," because replacing windows "can stimulate spending and raise employment." If you look hard at New-Keynesian models, however, this diagnosis and these policy predictions are fragile. There are many ways to generate the models' predictions for GDP, employment and inflation from their underlying assumptions about how people behave. Some predict outsize multipliers and revive the broken-window fallacy. Others generate normal policy predictions—small multipliers and costly broken windows.

Mandeville's work ... was virtually the living embodiment of what ... Frédéric Bastiat would call the 'broken-window fallacy.' Mandeville not only defended the importance of luxury but also of fraud, as providing work for lawyers, and theft, for having the virtue of employing locksmiths. And then there was Mandeville's classically imbecilic defence, in his Fable of the Bees, of the Great Fire of London:

The Fire of London was a great Calamity, but if the Carpenters, Bricklayers, Smiths ... were to Vote against those who lost by the Fire; the Rejoicings would equal if not exceed the Complaints.

It may seem that someone who breaks your window is creating jobs and stimulating the economy, since he is supplying a glazier with employment. But in fact, the work the glazier gets is merely what is seen. What is not seen is what you would have done with the money if you had not had to hire a glazier to replace your windowpane. Perhaps you would have bought a new pair of shoes, in which case you would have had an intact window and a new pair of shoes. But hiring the glazier uses up the money you would have spent on shoes, so that you have merely an intact window.

We often hear that government must spend more ... in order to create jobs. After Hurricane Katrina and the subsequent flooding of New Orleans, some newspaper pundits even suggested that the cleanup effort might increase employment and spur productivity, as though it is better for the economy to suffer a natural disaster and then spend billions cleaning it up than it would be never to have endured the disaster in the first place ... Such naive reactions to spending due to war and natural disasters are perfect examples of what ... Frédéric Bastiat described as the broken-window fallacy.

ROCKWELL: ... Frederic Bastiat talked about the broken window fallacy. A boy tosses a rock through a baker's window and everybody's very sad for the poor baker. And then the guy in the ... crowd says, oh, don't worry, ... this is gonna be great. It's gonna be money for the glazier, then he'll buy a new suit and everything ... will multiply and we'll be all better off. But that, ... leaving aside property rights and morality questions ... ignores what that money would have been spent on otherwise ... [Y]ou can think of the U.S. military as that little boy with the rock.