Economics Lesson – The Broken Window Fallacy (Don’t forget what is unseen)
This lesson is inspired by Frederic Bastiat’s work which was repeated in Henry Hazlett’s work, both of which are available at no charge on-line.
(This is intended to be a five-minute lesson that you can use in the monthly meeting of your book club, church group, scout group, or other group. Each of the lessons includes a souvenir or memento to help the participants remember the lesson.)
Give each person a small, clear glass “stone” – the type you can buy to put in the bottom of flower vases. This represents a piece of a broken window, which will help you remember this lesson.
The lesson:
Imagine that a troublemaker throws a brick through a shopkeeper’s window, shattering the window.
This destroys the window, but people begin to think that it is not all bad, and maybe the troublemaker should be considered to be a hero, because now the shopkeeper will have to buy a new window, which will give business to the window company and thereby create jobs and boost the economy.
While it is true that the shopkeeper will have to buy a window, and this will give business to the window company and create jobs, what is forgotten is what is not seen. Namely, if the shopkeeper did not have to spend his money on replacing a broken window, he would have been able to spend that money on braces for his child’s teeth, which also would have created jobs. Also, if the window had not been broken and the shopkeeper had instead spent the money on braces for his child’s teeth, he would have had both the window and the braces. Instead, as it is now, he has only the window.
Thus, breaking the window made the overall economy worse off than it was before, not better off.
This lesson also should be remembered when we think about government projects, which are said to improve the economy and to “create jobs”. When the government spends taxpayer money on “shovel ready jobs” or on other “job-creating projects”, it is taking money that the taxpayers otherwise would have been able to spend on something else that they wanted, which also would have provided jobs. So, what is often forgotten or ignored in the discussion are the opportunities that were lost because the taxpayer was not able to spend his own money as he wanted.
(This lesson and others may be found at JeffersonReview.com. Permission is granted to reproduce these materials.)
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