The broken window fallacy argues against destruction and repair as economic stimulus, ignoring the possibility of how money could have been spent otherwise. It is based on the parable of the broken window, which demonstrates the unseen consequences of events. The fallacy ignores the lost opportunities for other businesses and individuals, and a more developed economic model must consider these consequences.
The broken window fallacy is actually an argument in economics against the benefits of destruction and repair as a form of economic stimulus or bonus. Many people argue that money spent to fix something is beneficial because it is paid to a person who has to fix it and motivates economic benefits for that person. While this is certainly true, this argument ignores the possibility of how that money might otherwise have been spent and who would have benefited from that spending. This fallacy is often used to argue against the idea that war is financially beneficial to a country’s economy.
Based on the broken window parable, the broken window fallacy is an economic argument rather than a fallacy established within formal or informal logic. The parable of the broken window was first told by the French economist Frederic Bastiat as a way to demonstrate that many economic models do not consider invisible factors or consequences. In this parable, a shopkeeper’s son accidentally breaks one of the shop windows. In response to this, passers-by console the shopkeeper by reminding him that the money he spends on repairing the window is good for the glazier and consequently for the economy.
This argument, that money spent is good for the economy, is at the heart of the broken window fallacy. While Bastiat indicates that the money is certainly good for the particular glazier called upon to fix the window, it does nothing in particular for the economy that it could not have done otherwise. That money could have been used by the shopkeeper to pay for anything else he needed. Any of these other things would have just as easily put that money into the economy and would have been just as beneficial to someone other than the glazier.
The point of the broken window fallacy is that a more developed economic model must consider the unseen consequences of events. While the glazier may have benefited from the broken window, the cobbler who would have made new shoes for the shopkeeper or the tailor who would have made a new suit for him have now lost money in the situation. According to the blunder, the money spent on the window would still enter the economy in the way the shopkeeper preferred. A second negative financial consequence is also seen by the shopkeeper, who previously had a working window and the amount needed to repair it, while now only having a working window.
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