![Broken window large](https://upload.wikimedia.org/wikipedia/commons/d/d3/Broken_window_large.jpg)
The parable of the broken window was introduced by French economist
Frédéric Bastiat in his 1850 essay "
That Which We See and That Which We Do Not See" ("") to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society.
The
parable
A parable is a succinct, didactic story, in prose or verse, that illustrates one or more instructive lessons or principles. It differs from a fable in that fables employ animals, plants, inanimate objects, or forces of nature as characters, w ...
seeks to show how
opportunity cost
In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More effective it means if you chose one activity (for example ...
s, as well as the law of
unintended consequences
In the social sciences, unintended consequences (sometimes unanticipated consequences or unforeseen consequences) are outcomes of a purposeful action that are not intended or foreseen. The term was popularised in the twentieth century by Ameri ...
, affect economic activity in ways that are unseen or ignored. The belief that destruction is good for the economy is consequently known as the broken window fallacy or glazier's fallacy.
Parable
Bastiat's original parable of the broken window from "Ce qu'on voit et ce qu'on ne voit pas" (1850):
Interpretations and evidence
Bastiat's argument
Suppose it was discovered that the little boy was actually hired by the glazier, and paid a franc for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business at the expense of the baker, the tailor, and so on.
Bastiat argues that society endorses activities that are morally equivalent to the glazier hiring a boy to break windows for him:
Bastiat is not addressing
production
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
– he is addressing the stock of
wealth
Wealth is the abundance of Value (economics), valuable financial assets or property, physical possessions which can be converted into a form that can be used for financial transaction, transactions. This includes the core meaning as held in the ...
. In other words, Bastiat does not merely look at the immediate but at the longer effects of breaking the window. Bastiat takes into account the consequences of breaking the window for society as a whole, rather than for just one group.
Austrian theorists cite this fallacy, saying it is a common element of popular thinking. The 20th century American economist
Henry Hazlitt
Henry Stuart Hazlitt (; November 28, 1894 – July 9, 1993) was an American journalist who wrote about business and economics for such publications as ''The Wall Street Journal'', ''The Nation'', ''The American Mercury'', ''Newsweek'', and '' ...
devoted a chapter to the fallacy in his book ''
Economics in One Lesson
''Economics in One Lesson'' is an introduction to economics written by Henry Hazlitt and first published in 1946. It is based on Frédéric Bastiat's essay ' (English: "What is Seen and What is Not Seen").
The "One Lesson" is stated in Part On ...
''.
Cost of disasters
The broken-window scenario is used as an analogy for destruction by natural disasters. Disasters disrupt economic activity. The economic effects of natural disasters are varied.
![Taisho-suji market f164](https://upload.wikimedia.org/wikipedia/commons/3/3c/Taisho-suji_market_f164.jpg)
Countries are more likely to have GDP fall after a disaster if they have more unemployment, more poverty, less effective local and national governments and institutions, and weaker economic and diplomatic connections. Countries are more likely to have a GDP boost and recover quickly from a disaster if they retain a skilled workforce and the ability to mobilize resources for reconstruction, including resources from outside the disaster area.
On the one hand, prompt recovery has been attributed to prompt insurance and aid payments, with the contrast between
Hurricane Andrew
Hurricane Andrew was a very powerful and destructive Category 5 Atlantic hurricane that struck the Bahamas, Florida, and Louisiana in August 1992. It is the most destructive hurricane to ever hit Florida in terms of structures damaged ...
and
Hurricane Katrina
Hurricane Katrina was a destructive Category 5 Atlantic hurricane that caused over 1,800 fatalities and $125 billion in damage in late August 2005, especially in the city of New Orleans and the surrounding areas. It was at the time the cost ...
as an anecdotal example. On the other hand, slow recovery has been blamed on predatory behaviour, with those unharmed or less-harmed by the disaster taking advantage of those more harmed.
[
Areas that have had repeated disasters tend to invest more in skills and education (possibly because this is preferred to riskier investment in infrastructure, which might be destroyed again), and they tend to have a higher ]total factor productivity
In economics, total-factor productivity (TFP), also called multi-factor productivity, is usually measured as the ratio of aggregate output (e.g., GDP) to aggregate inputs. Under some simplifying assumptions about the production technology, growt ...
(possibly also because infrastructure destroyed in disasters is replaced with better infrastructure, as, for instance, in the Great Fire of London
The Great Fire of London was a major conflagration that swept through central London from Sunday 2 September to Thursday 6 September 1666, gutting the medieval City of London inside the old Roman city wall, while also extending past the ...
). These tendencies could in theory lead to longer-term economic benefits (which may cause GDP growth).
There is some evidence that geological disasters do more economic harm than climate-related disasters, in the long term. Geological disasters, such as landslides
Landslides, also known as landslips, are several forms of mass wasting that may include a wide range of ground movements, such as rockfalls, deep-seated slope failures, mudflows, and debris flows. Landslides occur in a variety of environments, ...
and earthquakes, happen with little immediate warning and kill many people. Climate-related disasters, such as hurricanes, are more predictable on a scale of days to hours, and kill fewer people. Such warning saves people, but not immovable property. This suggests that killing people does long-lasting economic harm, while destroying capital is not as harmful to GDP growth.
"Destroy any amount of physical capital, but leave behind a critical number of knowledgeable human beings whose brains still house the culture and technology of a dynamic economy, and the physical capital will tend to reemerge almost spontaneously" — George Horwich, Purdue University[
]
Even in disasters with few physical injuries, a large portion of the economic cost may be public health effects (approximately a tenth, in the case of the summer 2007 floods in the UK). The economic costs of disruption to children's education are significant. Mental health issues may be triggered or exacerbated by the distress suffered during the disaster. Health advice on minimizing psychosocial stress has been given for disasters. While public health costs may contribute to economic activity and GDP growth, growth in demand for medical or educational assistance is unlikely to be seen as beneficial.
Opportunity cost of war
Occasionally the argument has been made that war is a benefactor to society and that "war is good for the economy." A variant of this argument suggests that, while war cannot be fairly called a benefactor, it can and sometimes does confer some economic benefits.[See for example economist ]Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
's article in which he refers to the Fukushima disaster in Japan: And another in which he refers to the 9-11 attacks: However, this belief is often given as an example of the broken window fallacy. The money spent on the war effort (or peacetime defense spending
A military budget (or military expenditure), also known as a defense budget, is the amount of financial resources dedicated by a state to raising and maintaining an armed forces or other methods essential for defense purposes.
Financing militar ...
), for example, is money that cannot be spent on food, clothing, health care, or other sectors of the economy. The stimulus felt in one sector of the economy comes at a direct – but hidden – cost (via foreclosed production possibilities) to other sectors.
Bastiat himself argued against the claim that hiring men to be soldiers was inherently beneficial to the economy in the second chapter of ''That Which is Seen, and That Which is Not Seen'', "The Disbanding of Troops".
According to Hazlitt:
See also
* Cobra effect
A perverse incentive is an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionall ...
* Creative destruction
Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and pop ...
* Disaster capitalism
''The Shock Doctrine: The Rise of Disaster Capitalism'' is a 2007 book by the Canadian author and social activist Naomi Klein. In the book, Klein argues that neoliberal free market policies (as advocated by the economist Milton Friedman) have r ...
* Dutch disease
In economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agricultur ...
(economics)
* Jevons paradox
In economics, the Jevons paradox (; sometimes Jevons effect) occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the falling cost o ...
* Opportunity cost
In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More effective it means if you chose one activity (for example ...
* Rent-seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
* Spending multiplier
In economics, the fiscal multiplier (not to be confused with the money multiplier) is the ratio of change in national income arising from a change in government spending. More generally, the exogenous spending multiplier is the ratio of change ...
* Tax choice
In public choice theory, tax choice (sometimes called taxpayer sovereignty, earmarking, or fiscal subsidiarity) is the belief that individual taxpayers should have direct control over how their taxes are spent. Its proponents apply the theory of ...
* Uneconomic growth
Uneconomic growth is economic growth that reflects or creates a decline in the quality of life. The concept is used in human development theory, welfare theory, and ecological economics. It is usually attributed to ecological economist Herman ...
* Zero-sum game
Zero-sum game is a mathematical representation in game theory and economic theory of a situation which involves two sides, where the result is an advantage for one side and an equivalent loss for the other. In other words, player one's gain is e ...
* Zero-sum thinking
Zero-sum game is a mathematical representation in game theory and economic theory of a situation which involves two sides, where the result is an advantage for one side and an equivalent loss for the other. In other words, player one's gain is e ...
References
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External links
(original essay)
(English translation)
{{DEFAULTSORT:Parable Of The Broken Window
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