Monday, February 29, 2016

The Broken Window Fallacy

In 1850, a French economist by the name of Frédéric Bastiat formally uncovered a fallacy in his paper, “That Which is Seen and That Which is Not Seen”. This essay uncovered how the process of recovering from destruction does not advance an economy by creating a greater opportunity to pour money into an economy.

The name, “Broken Window Fallacy” comes from a pure example of a person breaking a window. The window in question has to be repaired, and the cost is $200 dollars. But alas, the community believes that this cost of reconstruction is, overall, stimulates the economy. The money put forth for the glass to get repaired would be allocated to several other forms of service down the line. This in turn would kick start the local economy and allow for money to flow in and around businesses.

The essay uncovers how the possibility of this positive outcome in a destructive circumstance can only be met with a realistic perspective of how economics work, and how the fallacy is blatantly present.

In saying this, the fallacy is beneficial, just not as directly effective to economy. This example shows that one can feed currency to a local economy can stimulate it as well as quickly distribute money. However, there are flaws that include the fact that money has the sole purpose of being allocated through its current economy. The circulation of $200 dollars in the example would have entered the economy one way or another. Also, the startup of a local economy can only occur if it is at a standstill, which is virtually impossible.

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