The Fallacy of the Broken Window

by | Aug 24, 2012 | Economics

First published in 1946, Economics in One Lesson by Henry Hazlitt remains one of best books on economics ever published. The lesson, to paraphrase Hazlitt, is that economists must look beyond the immediate and visible consequences of economic policies; they must look at the long term and “unseen” consequences. Hazlitt begins his lesson with the […]

First published in 1946, Economics in One Lesson by Henry Hazlitt remains one of best books on economics ever published. The lesson, to paraphrase Hazlitt, is that economists must look beyond the immediate and visible consequences of economic policies; they must look at the long term and “unseen” consequences.

Hazlitt begins his lesson with the fallacy of the broken window. This fallacy holds that a hoodlum who breaks a window is actually an economic hero because he creates work for the glazier who will make the repair. While it is true that the glazier, his suppliers, and his employees will benefit, the shop owner who must pay for the broken window has less money to spend on other items. The visible benefit to the glazier is offset by the less obvious harm done to the shop owner, his suppliers, and his employees.

The shop owner, for example, may have planned to buy a new suit. However, he must now spend that money to merely return to his previous state. The money that would have gone to the tailor has gone to the glazier.

Economic benefits do not result from destruction but from production. Economic benefits result from creating values, not destroying them.

While the example of the broken window is fairly easy to understand, economic destruction can occur in less obvious ways. Perhaps the most common today is government spending.

As an example, President Obama has repeatedly said that government investment in infrastructure will create jobs. While it is true that bridges and roads will employee thousands of construction workers, these jobs are the immediate and visible consequences. The longer and less visible consequences are the jobs that will not be created or will be destroyed because money is taken from businesses and individuals to pay for these projects. As Hazlitt writes, for every job “created” by government spending, another job has been destroyed to pay for it.

It could be argued that government spending on infrastructure does in fact create values, such as roads and bridges. But again, this is the immediate and visible consequence. Unlike the private sector, which trades value for value, government spending is founded on the confiscation of values. A private company offers goods and services, and consumers are free to take it or leave it. The government just takes. And what it takes from the private sector leaves less for the actual production of values.

Brian Phillips is the founder of the Texas Institute for Property Rights. Brian has been defending property rights for nearly thirty years. He played a key role in defeating zoning in Houston, Texas, and in Hobbs, New Mexico. He is the author of three books: Individual Rights and Government Wrongs, The Innovator Versus the Collective, and Principles and Property Rights. Visit his website at texasipr.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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