The Broken Window Fallacy

Today was my 4^th class with a new professor I will call Professor X.  By failing to understand verbal logic in class today, Professor X showed me why he is the paradigm example of a positivist.  For more on positivism, see Rothbard here.  Also, refer here.

This class is essentially a joke, much the same as any other class I have been forced to suffer through; the only difference being this is an Econ class and I am, therefore, much more critical.

We began chapter 4 today at 8 a.m. – as can be expected I was already in dismay having to be up so early – and it was a gem of an example of the typical boring Keynesian mathematical, graph-filled.  In fact, the whole textbook is utterly in sync with this chapter, providing nothing but the bankrupt methodology of the “new economics”.  In other words, it was a waste of a hundred or so dollars, not to mention the cost of my time.

Much of class had already passed – about 35 minutes or so – before anything worth mentioning was brought up.  It wasn’t until Professor X began to talk about the “Cash For Clunkers” program that I awoke from my hypnotic state.  Here he was, an economist talking about the benefits of using the “Cash For Clunkers” model for other types of goods – he had in mind houses, washing machines and et cetera.  I was in shock that this garbage was coming out of the mouth of someone who has a Ph. D. in Economics.  In hindsight, it shouldn’t have been that shocking considering the mainstream views of our day. 

As much as I try I cannot seem to become cynical enough; or to paraphrase Ayn Rand, morally and mentally bankrupt enough to give up my noble view of man, although this certainly helps.

Now as bad as I thought this ordeal was, it got worse.  Being the kind libertarian eager to spread the ideas of liberty that I am, I decided to educate my professor on the negative aspects, or rather in his terms “negative externalities,” of a “Cash For Clunkers” type program.  The simplest way to do this was – or so I thought -  by calling on Bastiat’s broken window fallacy, everyone has heard of that right?  Well, I suppose I should have known better than to make assumptions.  I was very mistaken in this case - Professor X has never heard of Frederic Bastiat!  Even worse, when I mentioned the broken-window fallacy he went into some schpeal about Rudy Giuliani and his plan to fix broken windows in New York City!  At this point I really was in awe of the situation; but not to worry, it gets worse.

Now, don’t get me wrong it is very easy to become disillusioned at this point and just say never mind, yet I plowed ahead for a reason that still escapes me.  I decided why not attempt to explain what the broken window fallacy since it is so elementary of a concept?  Now, I am sure I didn’t do Bastiat justice by my version of the story, however I am sure that I made the important points and implications crystal clear.

It starts out something like this – a young degenerate has thrown a brick through a store window.  Of course this broken glass will require someone to fix the damage.  So the storeowner must employ a glazier and pay him for the work.  This payment – say $150 – to the glazier will be an income, and therefore presumably increase his consumption.  So the glazier can buy something he previously would not have been able to afford, this in turn will increase another business’s income and so on ad infinitum.  The logic all seems very reasonable at first glance, but lets rethink things.  The broken window does in fact result in more work for the glazier, that’s undeniable; however the shopkeeper was planning on purchasing a new watch.  Now that he is out $150 he can no longer purchase the watch.  So he must forgo the watch, or rather, instead of having $150 and a window he now has only a window.  If he was planning on buying the watch later that day, his situation is now relatively much worse, he has only a window instead of a window and a watch.  The community is poorer because of that; the glazier’s gained business was simply the watchmaker’s loss.  The destruction didn’t create anything; to the contrary it destroyed a perfectly good window and the shopkeepers ability to buy the watch.  The mistake in the first explanation was that we forgot to look at the third party, the watchmaker; or for that matter any other potential good the shopkeeper could have bought instead of a window. 

Well, it turns out that my attempt at lecturing was in vain.  After I told the story, he went back into Giuliani fixing broken windows in New York City, how disappointing!  Then again, maybe the incredible failure can be attributed to my skills as a lecturer, who knows.

Anyway, I will dedicate a quote by Henry Hazlitt to my professor.  In the very first chapter Economics In One Lesson, Hazlitt writes:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.