Monday, February 29, 2016

The Broken Window Fallacy

            Let’s imagine one day a hoodlum throws a brick through your local bakery’s window. A crowd, you included, gathers around and you begin to console the baker over the loss of his beloved window. You begin to hear many members remind others and the baker, that tomfoolery like this has a bright side: it will create work for some glazier. As some begin to think, they also begin to elaborate and explain that although a new window would cost $250, it will be giving the glazier business, how else could he stay alive? While the glazier is repairing his window, he has to spend some of that money to buy the materials for the glass and the fittings, and that’ll create even more business ad infinium. And beyond that, the money he takes for himself he’ll spend it on other consumable items, like crops or maybe even the baker’s pastries. The hoodlum who threw the brick may not’ve been a hoodlum after all, but an important benefactor to society who stimulates the local economy.
            Let’s not stop here, but go on to an even larger scale. Let’s imagine the economy is in a depression, let’s say it’s in a great depression and there’s little hope for it to get better. Then comes along a war, which helps to increase government spending, create jobs, and stimulate the economy. Sound familiar?
            Unfortunately, that’s not the case. If you ever have constructed, or have been taught (like me), arguments like these are valid, you may have unknowingly committed what is called the Broken Window Fallacy. It is more of an economic fallacy than what might happen in dialogue or arguments, but it is also the most persistent economic fallacy of all times. The fallacy is simply this: to suppose that destruction stimulates the economy is a wrong assertion, because it doesn’t actually increase production in any way. To put it simply, because the hoodlum threw made the baker go to a glazier to buy a new window, it didn’t help the economy in the slightest. Sure, the glazier might have more income and supports other jobs and businesses, but it reduces the disposable income of the baker, which reduces the amount of money he could be able to spend on other goods and services.
            This fallacy is often used to discredit the idea a country going to war will stimulate the economy. As a broken window, the war would cause resources and capital to only be redistributed to other industries, rather than those resources being used to create more production. The fallacy asserts it’s a country’s production, rather than the money it’s generating which indicates how well off that economy is.
            While, it isn’t the best theory to pull out at parties, it certainly is useful in seasons like this, when we have to decide not only on who to elect for president, but who to elect for other offices as well. The real question remains, however, what the heck is a glazier?

No comments:

Post a Comment