Zeal For Truth

If there is one lesson - one economic concept that should be grasped above all others, it is the Broken Window Fallacy. If this fallacy were more widely understood, perhaps the public would begin to stop demanding more government programs, wars, price and wage controls and socialism in general. Here is the entire story, from that masterpiece Economics in One Lesson by Henry Hazlitt:

A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $50 more to spend with other merchants, and these in turn will have$50 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever- widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be not unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.

This fallacy has been most recently used to support the ideas that disasters (both man-made and natural) are actually good for the economy.

One close to my home is the New Carissa disaster and cleanup - where a freighter ran aground in Coos Bay, Oregon in 1999. The financial losses were substantial along with environmental damage as well. There have been several costly attempts by government to take care of the wreckage, but it still resides on the public beach. But this disaster is a “boon” to the economy according to the journalists in the Pacific Northwest:

Titan Maritime, the company charged by the state of Oregon to remove the wreckage of the New Carissa, has found Coos Bay to be a bountiful site when it comes to repairing ships.

[Engineering Director Phil Reed’s] first stop was Sause Bros. Ocean Towing Co., where crews repaired and repainted the boom on Titan’s “Big Red” crane. President Dale Sause said his company was busy at the time the barges first got here. Sause Bros. couldn’t do a lot of work for Titan but had no problem pointing Reed in the right direction. Sause referred him to welders, electricians and people who could sandblast and paint.As one connection led to another, Reed found himself a very busy man. His cellphone rang all day.

…Jerry Wharton, the owner of Wardrobe Cleaners in Coos Bay, and his employees will deal with a mountain of crew members’ laundry — more than 250 pounds per week. The pile is certain to grow as additional workers arrive.”To me, it’s amazing,” Reed said. “On this one little strip we’ve found 99 percent of what we need.”

Perhaps we should crash several other boats on the Coos Bay coast and really get the economy going!