What Is the Broken Window Fallacy?
The broken window fallacy is a parable that is sometimes used to illustrate the problem with the notion that going to war is good for a nation's economy. Its wider message is that an event that seems to be beneficial for those immediately involved can have negative economic consequences for many others.
The broken window fallacy was first expressed by the 19th-century French economist Frederic Bastiat.
Key Takeaways
- The core of the broken window fallacy argues that spending money on items that have been destroyed does not lead to economic gain.
- The broken window fallacy suggests that an event can have unforeseen negative ripple effects if money is redirected to repairing broken items rather than to new goods and services.
- The theory suggests that a boost to one part of the economy can cause losses to other sectors of the economy.
- The parable used in the broken window fallacy illustrates the negative economic effects of going to war: money is diverted from creating consumer goods and services to creating weapons, and money is further spent on repairing the damages from a war.
Understanding the Broken Window Fallacy
In Bastiat's tale, a boy breaks a window. The townspeople looking on decide that the boy has actually done the community a service because his father will have to pay the town's glazier to replace the broken pane. The glazier will then spend the extra money on something else, jump-starting the local economy. The onlookers come to believe that breaking windows stimulates the economy.
Bastiat points out that further analysis exposes the fallacy. By forcing his father to pay for a window, the boy has reduced his father's disposable income. His father will not be able to purchase new shoes or some other luxury goods. Productivity has also decreased, as the time the father spends dealing with the broken window could have been put to better use. Thus, the broken window might help the glazier, but at the same time, it robs other industries and reduces the amount spent on other goods.
Bastiat also noted that the townspeople should have regarded the broken window as a loss of some of the town's real value. Moreover, replacing something that has already been purchased represents a maintenance cost, not a purchase of new goods, and maintenance doesn't stimulate production. In short, Bastiat suggests that destruction doesn't pay in an economic sense.
The War Economy
The broken window fallacy is often used to discredit the idea that going to war stimulates a country's economy. As with the broken window, war causes resources and capital to be redirected from producing consumer goods and services to building weapons of war.
Moreover, post-war rebuilding will involve primarily maintenance costs and further depresses the production of consumer goods and services. The conclusion is that countries would be much better off not fighting at all.
Lost Sales Opportunities
The broken window fallacy also demonstrates the faulty conclusions of the onlookers. In considering the lucky glazier who will make some money repairing the window, they have forgotten about others who will be adversely affected, such as the shoemaker who has lost a sale because the money the father could've spent on new shows is now being spent on fixing a product that was already paid for.
Behavioral economists believe that consumers gain more satisfaction, known as utility, by spending money on new goods rather than on maintaining existing goods, even if the cost is higher. This is known as loss aversion or prospect theory.
In this sense, the fallacy comes from making a decision by looking only at the parties directly involved in the short term. Rather, Bastiat argues, we must look at all of those whose businesses will be impacted by the broken window.
The Bottom Line
The broken window fallacy argues that there is no economic gain from fixing the destruction caused by a certain event. Even though capital will be spent to repair any damages, that is only a maintenance cost that does not spur the economy in the long run, as it is not a true increase in economic output. The money and time spent on repairing damages could be spent on more productive goods and services. In war, resources are diverted to creating weapons as opposed to using those resources to invest in areas that could increase actual economic output.
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FAQs
The broken window fallacy argues that there is no economic gain from fixing the destruction caused by a certain event. Even though capital will be spent to repair any damages, that is only a maintenance cost that does not spur the economy in the long run, as it is not a true increase in economic output.
What is an example of a broken window in economics? ›
According to this fallacy, if a hooligan breaks the window of a bakery, the subsequent repair expenditures by the baker will have no net benefits for the economy. This is supposedly because if the baker had not spent his money to fix his broken window, he would have spent it on something else, say, buying a new jacket.
Which of the following is an example of the broken window fallacy? ›
Final answer: The Broken Window Fallacy is an economic concept that relates to the misguided belief that the destruction of property can stimulate economic growth. The example of a newscaster reporting that an earthquake will result in economic growth represents this fallacy.
What is a fallacy in economics? ›
Lesson Summary. The fallacy of composition is when an individual infers that something is true of the whole because it is true of part of the whole. In economics, this reasoning often leads to incorrect conclusions. For example, if you stand up at the baseball game, you can see better.
What is the main point of the broken window fallacy quizlet? ›
it is known as the "broken window fallacy." The broken window fallacy states that when a window breaks and someone spends money to repair it, he or she has created new economic activity that would not have otherwise taken place.
What is an example of broken windows theory? ›
An example of broken windows theory can be seen in public restrooms. The inside of restroom stalls is a frequent target of graffiti and vandalism. When the managers of the restroom take action to remove graffiti, and repair damage within a day of it occurring, the social norm of not causing damage is maintained.
What is the meaning of broken window? ›
broken windows theory, academic theory proposed by James Q. Wilson and George Kelling in 1982 that used broken windows as a metaphor for disorder within neighbourhoods. Their theory links disorder and incivility within a community to subsequent occurrences of serious crime.
What is the broken window fallacy in economics in one lesson? ›
The broken window fallacy is a parable that is sometimes used to illustrate the problem with the notion that going to war is good for a nation's economy. Its wider message is that an event that seems to be beneficial for those immediately involved can have negative economic consequences for many others.
What is an example of a broken window in business? ›
Examples of these “broken windows” within companies encompass absenteeism, information silos, covert terminations, employee resignations without notice, ineffective human resources management, employee burnout, an unjust or disconnected organizational culture, and a lack of employee engagement.
What is the broken window fallacy of opportunity cost? ›
The idea was first illustrated by French political economist Frederic Bastiat through the parable of the broken window in his 1850 essay “That Which is Seen, and That Which is Not Seen.” The broken window fallacy is used to emphasise the idea of opportunity cost and the need to look beyond the obvious to find the true, ...
A fallacy is an illogical step in the formulation of an argument. An argument in academic writing is essentially a conclusion or claim, with assumptions or reasons to support that claim. For example, "Blue is a bad color because it is linked to sadness" is an argument because it makes a claim and offers support for it.
What is an example of a fallacy of composition in economics? ›
“Saving money improves an individual's financial security, so if everyone in the nation saves money instead of spending, the economy will improve.” In this example of a fallacy of composition, the argument incorrectly assumes that what benefits an individual will benefit the group.
What is an example of the fallacy of division in economics? ›
Example. There are three groups, two periods, and the tax rate (taxes paid in relation to income) of each group. The tax rate of each group diminishes from t = 1 to t = 2, but, in the aggregate, the tax rate increases from t = 1 to t = 2. Emergent properties create this fallacy.
Which statement best describes the broken windows theory? ›
The broken windows theory states that visible signs of disorder and misbehavior in an environment encourage further disorder and misbehavior, leading to serious crimes.
What does the broken window suggest? ›
In criminology, the Broken Windows Theory states that visible signs of crime, antisocial behavior and civil disorder create an urban environment that encourages further crime and disorder, including serious crimes.
What do broken windows in broken windows theory represent in the broken windows theory broken windows refer to? ›
The Broken Windows Theory of Criminology suggests that visible signs of disorder and neglect, such as broken windows or graffiti, can encourage further crime and anti-social behavior in an area, as they signal a lack of order and law enforcement.
What is the broken window theory of the economy? ›
The broken window fallacy suggests that an event can have unforeseen negative ripple effects if money is redirected to repairing broken items rather than to new goods and services. The theory suggests that a boost to one part of the economy can cause losses to other sectors of the economy.
What is broken window in business? ›
The Broken Window Theory suggests that when bad behavior is not addressed immediately, it shows people that there are no consequences to breaking the rules, practices or standards. Without a correction; bad behavior becomes acceptable, quality will decrease and the organization will deteriorate.
What type of cost is a broken window? ›
Window repair costs typically range from $170 to $568, but many homeowners will pay around $305 on average depending on the type of repairs. Broken windows aren't just an eyesore; they also reduce your home's energy efficiency.
What is an example of trickle down economics working? ›
Famously, President Ronald Reagan and his “Reagonomics” became a beacon to those who believed in trickle-down economics when he passed two tax reform bills in the 1980s which brought tax down for higher earners from 73 percent to 28 percent, as well as reducing corporation tax from 46 percent to 40 percent.
