PokeBroncoFan Reviews: Economics in One Lesson

Part 2: The Lesson Applied

The Broken Window

I don't know if i've ever written about the broken window fallacy in Real Talk yet, but i'm going to go through this anyway for those who haven't been keeping up with my real talk.

I. Here's the gist of it:

A young kid throws a brick through a baker's window.

After initially believing that it was a bad crime for the kid to do, some people thought about the silver lining: Perhaps now the glass-maker will have more money. After all, the baker must buy a new window. Then, they say, the glass-maker will spend the fifty dollars he made from making the new window somewhere else. The effect, they say, will be like ripples in a pond for the community. The conclusion from this way of thinking, is that the kid who broke the window is a local hero.

Not so fast. Hazlitt points out that the initial observation is true. The glass-maker DOES have a new job to perform, and he will earn $50 more than otherwise. He will be happy because he gets to sell another window. But remember, the baker has lost $50. Instead of perhaps, getting his suit re-fit tonight at the tailor's shop, the baker has to spend his $50 replacing the window.

You can see here how even though the glass-maker gains income from having to repair the glass, the tailor has LOST potential income as a result. The Tailor's loss of income from what the baker would have otherwise spent is the unseen cost of the broken window. Everyone sees that the glass-maker has earned more, nobody sees what the tailor has lost.

In fact, had the window not been broken, the baker would have spent it repairing his suit. The tailor would have more money to spend elsewhere, and the money would still have rippled throughout the town's economy. "So there's no real loss, right?" you may be asking. "The glass maker gains $50, the tailor loses $50, and the baker just spends it differently. There's no real loss in what could have happened."

Wrong. The money could have been spent on a suit, then the tailor could have spent it somewhere else, etc... And the baker would still have a window. The community's economy as a whole would be wealthier by one window, and the money could be spent on things that society has not yet achieved.

A/n: PBF here! The reason the author put this fallacy first is very important. The reason is because it takes many forms and faces depending on how its presented. It is very imperitive to understand the principle behind the broken window fallacy. For more on the broken window fallacy and its history, research French Philosopher Frederic Bastiat.