The Broken Window Fallacy

Does destruction create jobs? After natural disasters, terrorist attacks, and wars, some people argue that these disasters are good for the economy, because they create jobs and prosperity. As Prof. Art Carden of Rhodes College explains, this is an example of the "broken window fallacy," a term coined by Frederic Bastiat. When a shopkeeper's window is broken, he will spend money on a new window, which gives income and jobs for glaziers. This activity is "seen," but the "unseen" is just as important: the money spend on a new window could have been spent on other things. Wealth has not increase, but only reallocated from some people to others, and society is worse off by one window.

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[captainjack77]

What an asinine argument. Automation frees up labour, which allows people to do something else, something more productive. For example, you would argue that a backhoe has cost people jobs, since we could have employed 200 people to dig the same hole with shovels. But you would then argue, shovels have put people out of work, since we could have hired 20,000 to dig the same hole, with their hands.

Automation is in fact a good thing - it leads to increased living standards and MORE opportunity.

[tiki2188]

It is kinda sad that still, in 2013, the notion that "war can be a good thing" is still around. Besides the obvious moral issues with it, does it really need deep thought and economic knowledge and etc to get that "destruction destroys prosperity"?? LOL

Sure, a boom happens after an war/disaster/attack but its just rebuilding from a new low, NOT making new prosperity.

[mmann66666]

It sounds like you are an Austrian economist. This receives little traction due to its continued inability to provide predictions. Recessions are repeatedly occur with out being preceded by increased monetary expansion such as in the 1990s and the downward demand spiral that occurs clearly responds to Keynesian predictions when spending is increased and that after the introduction of a central bank that the average length of recessions fell and didn't increase as Austrian economics predicted.

[mmann66666]

This only works if there is a downward demand spiral. If not and investment and consumption are already large enough. Otherwise there is no increase in consumption and investment and we all end up poorer because we have to pay for a new window.

[mmann66666]

If large concerted spending occurs, say by breaking windows, people are forced to spend and repare them. This spending assists in employment which inturn increases demand for goods. This makes investments seem more likely to be profitable and the savings are no longer idle. The small dip in total wealth from the window breaking is more than out weighed by the encouraging of investment.

[mmann66666]

When deflation occurs after an irrational spending causing a bubble people end up consuming less. Prices fall except when this happens people and banks become scared and avoid spending. This creates a downward demand spiral. Investment slows and savings sit idle. For savings to improve standards of living they need to be used. This does not happen during a contraction because if any individual spends they will be worse off - game theory.

[MakepplQQthenRQ]

have you seen berlin

[Mark D]

The most important question I would really like Congress to answer: Why does our government encourage malinvestment and discourage capital investment within the USA?

[mmann66666]

This only applies if you are at capacity which is when governments are least likely to encourage drastic increases in spending.

[mmann66666]

It does if the economy is below capacity and in recession. It encourages other people to spend money they have been hording and allows more growth than the destruction that has occurred.

You wouldn't buy a suit in a recession you hord it/save then the bank would not invest it because others are also horiding money and would cause new investments to go bankrupt.

Having a mass forced spending of this horded money is what we want which can be done through destruction or other means.