Parable of the broken window
Encyclopedia
The parable of the broken window was introduced by Frédéric Bastiat
in his 1850 essay (That Which Is Seen and That Which Is Unseen) to illustrate why destruction, and the money spent to recover from destruction, is actually not a net-benefit to society. The parable
, also known as the broken window fallacy or glazier's fallacy, demonstrates how opportunity costs, as well as the law of unintended consequences
, affect economic activity in ways that are "unseen" or ignored.
In short, the broken window (and the boy who broke it) did not provide any net benefit to the town, but rather made the town poorer in future benefits by at least the value of one window, if not more.
economists, and Bastiat himself, apply the parable of the broken window in a different way. Suppose it was discovered that the little boy was actually hired by the glazier, and paid a franc for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows in order to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business at the expense of the baker, the tailor, and so on.
Bastiat argues that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him:
One of the problems with arbitrating between different interpretations of Bastiat is that Austrian economists and those who refer to Bastiat are making a statement about total wealth in society, whereas those they are criticizing are making a statement about a snapshot of production in a given year. Bastiat is not addressing production — he is addressing the stock of wealth. In other words, Bastiat does not merely look at the immediate but at the longer effects of breaking the window. Moreover, Bastiat does not only take into account the consequences of breaking the window for one group but for all groups, for society as a whole.
Economists of the Austrian School
frequently cite this fallacy and claim that it is a common element of popular thinking. The 20th century American economist Henry Hazlitt
devoted a chapter to it in his book Economics in One Lesson
.
The loss of a window pane may not have the same downstream opportunity costs as the broken glass pane, at equal replacement value to the glazier or shop keeper. There is likely more future utility in a window pane because it prevents damage to a house e.g. preventing pipes from freezing, rain entering the house, etc. If a shopkeeper's store window remains broken the future opportunity cost is even greater. Sales would likely be lost from consumers who chose to avoid a store with a boarded window.
The anger of the shopkeeper indicates that he perceives this breakage to be a loss that cannot be overlooked. The loss must be repaired to sustain a future business venture, requiring added effort and sacrifice.
is a benefactor, since historically it often has focused the use of resources and triggered advances in technology and other areas while reducing unemployment. The increased production and employment associated with war
often leads some to claim that "war is good for the economy." However, this belief is often given as an example of the broken window fallacy. The money spent on the war effort, for example, is money that cannot be spent on food, clothing, health care, consumer electronics or other areas. The stimulus felt in one sector of the economy comes at a direct—but hidden—cost to other sectors.
Bastiat himself argued against the claim that hiring men to be soldiers was inherently beneficial to the economy in the second chapter of That Which is Seen, and That Which is Not Seen, "The Disbanding of Troops":
In addition, war destroys property and lives. The economic stimulus to one nation's defense
sector is offset not only by immediate opportunity costs, but also by the costs of the damage and devastation of war to the country it attacks. This forms the basis of a second application of the broken window fallacy: rebuilding what war destroys stimulates the economy, particularly the construction sector. However, immense resources are spent merely to restore pre-war conditions. After a war, there is only a rebuilt city. Without a war, there are opportunities for the same resources to be applied to more fruitful purposes. Instead of rebuilding a destroyed city, the resources could have been used to improve and enlarge the city or build a second one.
While neither example of the fallacy necessarily supports any form of pacifism
, the point made in each case is that war is inherently destructive rather than productive; the only way war can bring the countries involved in it any economic benefit is through the destruction of lives and property that are having a negative effect on a nation's economy, such as the lives of an oppressive totalitarian dictator and his enforcers and any records these oppressors may have been keeping on their subjects in order to blackmail them. War brings no other kind of net economic benefit to the combatants, and therefore any argument in favor of having a war based on the premise that war will stimulate productivity is fallacious because the premise is false; going to war will invariably decrease that nation's net productivity.
One example of the costs of war sometimes given is the many projects postponed or not started until after the end of World War II
in the United States
. The pent-up demand for roads, bridges, houses, cars, and even radios led to massive inflation in the late 1940s. The war delayed the commercial introduction of television
, among other things, and the resources sent overseas to rebuild the rest of the world after the war were not available to the American people for their direct benefit; neither did the war enrich any of these other nations.
According to Hazlitt:
. Bastiat referred to this in his essay as "what is not seen". Because the costs are hidden, there is an illusion that the benefits cost nothing. Hazlitt summarized the principle by saying, "Everything we get, outside the free gifts of nature, must in some way be paid for." Robert A. Heinlein
popularized a summarization/acronym of the concept called "TANSTAAFL
" (There Ain't No Such Thing As A Free Lunch).
Common examples of special interest groups practicing the broken window fallacy might be:
With all of these examples, care must be taken that every factor is taken into account, just as happened in the parable of the broken window: does one know all the costs and benefits? E.g. hiring people to do nothing or to break things and repair them is probably a bad idea. This is the case in the military spending and government employment examples. But if the hired people or the spent money actually result in useful work (however, the term "useful work" is a fallacy in itself — it is not the work that is useful but only the product or result produced by the work), things are less clear. It depends on the amount of useful work delivered compared to the amount of money spent if the spending was a good idea. This is the case in the cash for clunkers, the public works, and the renewable energy examples. This analysis is only necessary, however, when the accomplished result has a future benefit beyond the simple fact of delivering work. As Bastiat shows, the simple accomplishment of useful work can never make such projects a net positive; the glazier also performed useful work. But if a project improves the efficiency of future work, there can be a net benefit. For example, a public works program to build roads creates no wealth simply by virtue of building the road. But in the future, that road may increase trade by improving the efficiency of moving goods and reducing future costs. In such a case, the road may be a net benefit — it is an investment, rather than destruction followed by redistribution. The point of the broken window parable is to show that one cannot ignore the hidden costs of taking wealth to build the road when totalling up any such "net benefit."
Frédéric Bastiat
Claude Frédéric Bastiat was a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost.-Biography:...
in his 1850 essay (That Which Is Seen and That Which Is Unseen) to illustrate why destruction, and the money spent to recover from destruction, is actually not a net-benefit to society. The parable
Parable
A parable is a succinct story, in prose or verse, which illustrates one or more instructive principles, or lessons, or a normative principle. It differs from a fable in that fables use animals, plants, inanimate objects, and forces of nature as characters, while parables generally feature human...
, also known as the broken window fallacy or glazier's fallacy, demonstrates how opportunity costs, as well as the law of unintended consequences
Unintended Consequences
Unintended Consequences is a novel by John Ross, first published in 1996 by Accurate Press. The story chronicles the history of the gun culture, gun rights and gun control in the United States from the early 1900s through the late 1990s...
, affect economic activity in ways that are "unseen" or ignored.
The parable
Bastiat's original parable of the broken window from Ce qu'on voit et ce qu'on ne voit pas (1850):Differing interpretations
The implications of the fallacy can also be extended to the glazier. The onlookers assume that this needed window will have a positive effect for the glazier, but in order to assume this, the glazier must have time and supplies available which currently have no other use. If the glazier has other jobs which demand his time and supplies, this additional job now represents a negative constraint for the glazier in that he may not be able to complete his other jobs on time.In short, the broken window (and the boy who broke it) did not provide any net benefit to the town, but rather made the town poorer in future benefits by at least the value of one window, if not more.
Bastiat's argument
Austrian SchoolAustrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
economists, and Bastiat himself, apply the parable of the broken window in a different way. Suppose it was discovered that the little boy was actually hired by the glazier, and paid a franc for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows in order to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business at the expense of the baker, the tailor, and so on.
Bastiat argues that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him:
One of the problems with arbitrating between different interpretations of Bastiat is that Austrian economists and those who refer to Bastiat are making a statement about total wealth in society, whereas those they are criticizing are making a statement about a snapshot of production in a given year. Bastiat is not addressing production — he is addressing the stock of wealth. In other words, Bastiat does not merely look at the immediate but at the longer effects of breaking the window. Moreover, Bastiat does not only take into account the consequences of breaking the window for one group but for all groups, for society as a whole.
Economists of the Austrian School
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
frequently cite this fallacy and claim that it is a common element of popular thinking. The 20th century American economist Henry Hazlitt
Henry Hazlitt
Henry Stuart Hazlitt was an American economist, philosopher, literary critic and journalist for such publications as The Wall Street Journal, The Nation, The American Mercury, Newsweek, and The New York Times...
devoted a chapter to it in his book Economics in One Lesson
Economics in One Lesson
Economics in One Lesson is an introduction to free market economics written by Henry Hazlitt and published in 1946, based on Frédéric Bastiat's essay .The "One Lesson" is stated in Part One of the book:...
.
Limitations
The interpretations assume that the window, which was broken, had a positive value and that the shopkeeper is a rational agent. In the broader scope, offsetting factors can reduce or even negate the cost of destruction.The loss of a window pane may not have the same downstream opportunity costs as the broken glass pane, at equal replacement value to the glazier or shop keeper. There is likely more future utility in a window pane because it prevents damage to a house e.g. preventing pipes from freezing, rain entering the house, etc. If a shopkeeper's store window remains broken the future opportunity cost is even greater. Sales would likely be lost from consumers who chose to avoid a store with a boarded window.
The anger of the shopkeeper indicates that he perceives this breakage to be a loss that cannot be overlooked. The loss must be repaired to sustain a future business venture, requiring added effort and sacrifice.
The opportunity cost of war
The argument can be made that warWar
War is a state of organized, armed, and often prolonged conflict carried on between states, nations, or other parties typified by extreme aggression, social disruption, and usually high mortality. War should be understood as an actual, intentional and widespread armed conflict between political...
is a benefactor, since historically it often has focused the use of resources and triggered advances in technology and other areas while reducing unemployment. The increased production and employment associated with war
War economy
War economy is the term used to describe the contingencies undertaken by the modern state to mobilise its economy for war production. Philippe Le Billon describes a war economy as a "system of producing, mobilising and allocating resources to sustain the violence".Many states increase the degree of...
often leads some to claim that "war is good for the economy." However, this belief is often given as an example of the broken window fallacy. The money spent on the war effort, for example, is money that cannot be spent on food, clothing, health care, consumer electronics or other areas. The stimulus felt in one sector of the economy comes at a direct—but hidden—cost to other sectors.
Bastiat himself argued against the claim that hiring men to be soldiers was inherently beneficial to the economy in the second chapter of That Which is Seen, and That Which is Not Seen, "The Disbanding of Troops":
In addition, war destroys property and lives. The economic stimulus to one nation's defense
Defense industry
The defense industry, also called the military industry, comprises government and commercial industry involved in research, development, production, and service of military materiel, equipment and facilities...
sector is offset not only by immediate opportunity costs, but also by the costs of the damage and devastation of war to the country it attacks. This forms the basis of a second application of the broken window fallacy: rebuilding what war destroys stimulates the economy, particularly the construction sector. However, immense resources are spent merely to restore pre-war conditions. After a war, there is only a rebuilt city. Without a war, there are opportunities for the same resources to be applied to more fruitful purposes. Instead of rebuilding a destroyed city, the resources could have been used to improve and enlarge the city or build a second one.
While neither example of the fallacy necessarily supports any form of pacifism
Pacifism
Pacifism is the opposition to war and violence. The term "pacifism" was coined by the French peace campaignerÉmile Arnaud and adopted by other peace activists at the tenth Universal Peace Congress inGlasgow in 1901.- Definition :...
, the point made in each case is that war is inherently destructive rather than productive; the only way war can bring the countries involved in it any economic benefit is through the destruction of lives and property that are having a negative effect on a nation's economy, such as the lives of an oppressive totalitarian dictator and his enforcers and any records these oppressors may have been keeping on their subjects in order to blackmail them. War brings no other kind of net economic benefit to the combatants, and therefore any argument in favor of having a war based on the premise that war will stimulate productivity is fallacious because the premise is false; going to war will invariably decrease that nation's net productivity.
One example of the costs of war sometimes given is the many projects postponed or not started until after the end of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. The pent-up demand for roads, bridges, houses, cars, and even radios led to massive inflation in the late 1940s. The war delayed the commercial introduction of television
Television
Television is a telecommunication medium for transmitting and receiving moving images that can be monochrome or colored, with accompanying sound...
, among other things, and the resources sent overseas to rebuild the rest of the world after the war were not available to the American people for their direct benefit; neither did the war enrich any of these other nations.
According to Hazlitt:
The cost of special interests and government
Bastiat, Hazlitt, and others equated the glazier with special interests, and the little boy with government. Special interests request money from the government (in the form of subsidies, grants, etc.), and the government then forces the taxpayer to provide the funds. The recipients certainly do benefit, so the government action is often regarded by the people as benefiting everyone. But the people are failing to consider the hidden costs: the taxpayers are now poorer by exactly that much money. The food, clothing or other items they might have purchased with that money will now not be purchased—but since there is no way to count "non-purchases," this is a hidden cost, sometimes called opportunity costOpportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
. Bastiat referred to this in his essay as "what is not seen". Because the costs are hidden, there is an illusion that the benefits cost nothing. Hazlitt summarized the principle by saying, "Everything we get, outside the free gifts of nature, must in some way be paid for." Robert A. Heinlein
Robert A. Heinlein
Robert Anson Heinlein was an American science fiction writer. Often called the "dean of science fiction writers", he was one of the most influential and controversial authors of the genre. He set a standard for science and engineering plausibility and helped to raise the genre's standards of...
popularized a summarization/acronym of the concept called "TANSTAAFL
TANSTAAFL
"There ain't no such thing as a free lunch" is a popular adage communicating the idea that it is impossible to get something for nothing. The acronyms TANSTAAFL and TINSTAAFL are also used...
" (There Ain't No Such Thing As A Free Lunch).
Common examples of special interest groups practicing the broken window fallacy might be:
- Arguments for public worksPublic worksPublic works are a broad category of projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community...
projects as a way to reduce unemployment. The hidden cost here is of course the tax payer's money, and the special interests are the jobs created by the public works. This is analogous to the fallacy only if in fact the taxation induces opportunity costs and a net social loss, yet public works are not inherently destructive and need not involve demolition for the sake of superflous rebuilding (i.e., intentionally breaking windows). Public works often are genuinely new and additive to shared societal value, independent of any benefits of maintaining a pool of skilled glaziers or other workers. - Arguments to restrict immigration on the grounds that immigrants will take domestic jobs. This ignores the fact that immigrants, once employed, will earn and spend money on goods and services, creating new jobs to make up for the old ones they took.
- Arguments for protectionistProtectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
measures such as tariffs, subsidies and/or other regulations in order to protect local industries. Eliminating country A's tariffs on country B's products would allow country A consumers to buy said products more cheaply, leaving them more money with which to buy other products, and would give citizens of country B more money with which to buy Country A's products. - Arguments for instituting a minimum wageMinimum wageA minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
, or raising the minimum wage. Arguments against raising the minimum wage in fact serve private interests. - Cash for ClunkersCar Allowance Rebate SystemThe Car Allowance Rebate System , colloquially known as "Cash for Clunkers", was a $3 billion U.S. federal scrappage program intended to provide economic incentives to U.S. residents to purchase a new, more fuel-efficient vehicle when trading in a less fuel-efficient vehicle...
which was a program in which the U.S. government paid consumers to trade in antiquated low gas mileage cars for newer, more efficient higher gas mileage cars, and the trade-ins were subsequently destroyed. A similar program allows for trade-ins of old energy inefficient appliances for more energy efficient appliances. Such programs may be viewed as imposing a net cost only if failing to account for the potentially significant added value of decreased pollution, and the inherent benefits of expending fewer unit of fuel per mile. - DepreciationDepreciation (currency)Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system. It is most often used for the unofficial increase of the exchange rate due to market forces, though sometimes it appears...
as a means to increase exports by making goods less expensive to foreigners, and to decrease the demand for imports—which are made more expensive—in order to stimulate the domestic economy. What is not seen is the fact that domestic workers must do more work for less pay, and can purchase less with the proceeds. Essentially, the entire nation takes a pay cut. - InflationInflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
as a means to stimulate economic activity by making savings worth less and goods worth more, creating an imperative to purchase sooner rather than waiting. What is not seen is the increased risk of no cushion of savings, the stimulation of large amounts of consumer debtConsumer debtIn economics, consumer debt is outstanding debt of consumers, as opposed to businesses or governments. In macroeconomic terms, it is debt which is used to fund consumption rather than investment...
, and the loss of purchasing powerPurchasing powerPurchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing...
due to salaries lagging inflation. - Planned obsolescencePlanned obsolescencePlanned obsolescence or built-in obsolescence in industrial design is a policy of deliberately planning or designing a product with a limited useful life, so it will become obsolete or nonfunctional after a certain period of time...
, an item designed to break or become undesirable after some period of time. - Advertisements promoting the replacement of old items with new items; for example, replacing last year's fashions with this year's.
With all of these examples, care must be taken that every factor is taken into account, just as happened in the parable of the broken window: does one know all the costs and benefits? E.g. hiring people to do nothing or to break things and repair them is probably a bad idea. This is the case in the military spending and government employment examples. But if the hired people or the spent money actually result in useful work (however, the term "useful work" is a fallacy in itself — it is not the work that is useful but only the product or result produced by the work), things are less clear. It depends on the amount of useful work delivered compared to the amount of money spent if the spending was a good idea. This is the case in the cash for clunkers, the public works, and the renewable energy examples. This analysis is only necessary, however, when the accomplished result has a future benefit beyond the simple fact of delivering work. As Bastiat shows, the simple accomplishment of useful work can never make such projects a net positive; the glazier also performed useful work. But if a project improves the efficiency of future work, there can be a net benefit. For example, a public works program to build roads creates no wealth simply by virtue of building the road. But in the future, that road may increase trade by improving the efficiency of moving goods and reducing future costs. In such a case, the road may be a net benefit — it is an investment, rather than destruction followed by redistribution. The point of the broken window parable is to show that one cannot ignore the hidden costs of taking wealth to build the road when totalling up any such "net benefit."
See also
- Jevons paradoxJevons paradoxIn economics, the Jevons paradox is the proposition that technological progress that increases the efficiency with which a resource is used, tends to increase the rate of consumption of that resource...
- Spending multiplier
- Creative destructionCreative destructionCreative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto and were expanded in Marx's Grundrisse and "Volume...
- Uneconomic growthUneconomic growthUneconomic growth, in human development theory, welfare economics , and some forms of ecological economics, is economic growth that reflects or creates a decline in the quality of life. The concept is attributed to the economist Herman Daly, though other theorists can also be credited for the...
External links
- "Ce qu'on voit et ce qu'on ne voit pas" (original essay)
- "That Which is Seen and That Which is Not Seen" (English translation)