The Broken Window Fallacy Reapplied
It is not a good thing to destroy wealth. Bastiat puts it this way: "Society loses the value of things which are uselessly destroyed."
It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.
If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction is actually a good thing. Let me try to show that the fallacy is as pervasive as ever. FULL ARTICLE
Comments (8)
Kristian Joensen
There is one word to describe this article: Brilliant.
Published: January 28, 2008 2:44 PM
flix
Excellent article!
Also very good book recommendations.
I specially liked de Soto's book on business cycles. I'm re-reading it and it is definitely the best guide to the present economic crisis that you can find anywhere.
In fact it is the book that convinced me that the austrian school was right, Chicago wrong.
Published: January 28, 2008 4:57 PM
It always gets worse.
And the worst part is:
Once politicos get going they always go for the jugular of foreign trade. That was in my opinion the worst part of the Great Depression. After filling the economy with credit thus escalating asset prices there was a 25% correction in one day and about 50% in one month. This was bad but not yet a depression or even a bad recession. But enter politics and those jokers really mucked it up creating make work projects and the biggie: The Smoot-Hawley Tariff. As prices locally increased from credit expansion the businesses were having trouble with foreign competition. The clamor to do something increased and the result was a huge tariff on most foreign goods. Of course our trading partners retaliated and some of the countries ended up so badly that the Fascists took over. Amazing how that works, you refuse to trade then socialists and fascists take over in the impoverished aftermath. The situation grew worse as business had free reign to jack up prices as their competition was crushed by the Federal Government. The process continued until there was wide spread poverty and misery. And the best part is: FDR is a hero!!!!
Published: January 28, 2008 9:59 PM
Dave
Good article however I must disagree about our ability to enlighten people with respect to the central banks penchant for perpetual inflation. It is so ingrained in the average consumers brain that to be in debt is OK or even admirable if it is for 4000 square foot house or a Hummer.
Given a choice of freedom or security most people will always choose security if it is in the guise of the status quo. Austrian economics would destroy empires that have garnered huge power throughout the world. They , the central bankers and their political puppets,will fight tooth and nail to prevent anyone from tipping the apple cart.
Published: January 29, 2008 4:56 PM
Mike McD
WOW. Preach on. Thanks for including a few optimistic points in this otherwise dreary situation. Great Piece.
Published: January 29, 2008 10:01 PM
IMHO
An excellent article. If, in my freshman year of college, my Econ 101 professor had discussed the fallacy of the broken window as opposed to drawing on the blackboard all manner of charts in a rainbow of colors, I might have done something other than stare out the window.
BTW, Lew, I hope that this article means that you're up and about and feeling better. Just don't do too much all at once.
Published: January 30, 2008 12:49 AM
GK
I enjoyed this article, but I fail to realize how government spending can be fully equated to a broken window. No doubt, the government redirects wealth from the private sector to the public. I guess the only way I could see the analogy work is if all government spending turns out worse conditions than any private investment otherwise would have. To me, the logical end to this thinking is that anarchy, ie no government spending, is the most profitable type of civilization. (Or, some type of government that operated off of free-will offerings) Could anyone please help clear up my thinking on this? Thanks.
Published: February 19, 2008 10:55 PM
Inquisitor
That is pretty much the implication of the article. The broken window fallacy applies most directly to events like wars, though.
Published: February 20, 2008 9:45 AM