Broken Window Fallacy
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[edit] Definition
The Broken Window Fallacy is a type of logical fallacy encountered, like the Sunk Cost Fallacy, primarily in economics and related issues.
The traditional example, as given by Frédéric Bastiat, goes as follows: A shopkeeper has a son who carelessly breaks his window. The people tell the shopkeeper that this is actually a good thing for the community, because now, a window-maker will get more business, helping the local economy.
[edit] Discussion
While it is true that the broken window will mean more business for the window-maker, and jobs for the laborers who install the new window, this new work comes at the expense of others. The shopkeeper must spend some of his own money to fix the window, and that money otherwise would have gone to something else. If, say, the shopkeeper was planning on using this money to buy a new suit, then the window-maker has his new business at the expense of the tailor's lost business.
The economy, instead of being helped, is actually poorer as a result. A new window was produced, but an old window was lost. It can be argued that the new window is worth more than the old, not only being newer but also being made technologically better, but this ignores the unseen cost: the loss of the suit that would otherwise have been created. If the new window was worth more than the new suit, the shopkeeper would have bought the new window even without the old one being broken.
We can show this mathematically:
value of new window - value of old (but unbroken) window < value of new suit
In reality, all we can say is that the new window is more valuable than a new suit when compared to the alternative of a broken window, not merely the alternative of the old window. Therefore, no wealth has been created—wealth has, in fact, been lost because of the lack of one suit that would have otherwise existed. Ignoring this hidden cost is precisely where the fallacy lies.
[edit] Examples
The Asian tsunami that occurred near the end of 2004 killed over 300,000 people, making it the deadliest tsunami and one of the deadliest natural disasters in history. It also caused billions of dollars in damage.
After it occurred, many pundits (generally from areas not affected by the tsunami) claimed that there would be an economic benefit from the tsunami, because in rebuilding the lost infrastructure it will be made better and more up-to-date.
Forgiving the fact that this does not include the economic impact of 300,000 lost lives, how can it be said to be true that the new infrastructure is worth more than the old, given what the survivors will have to go through in the interim? If they had felt it was worth it, they would have done so on their own absent a tsunami.
Of course, much of the money to rebuild came from either charitable donations from abroad or government aid. In each case, the money would have been put to different use. Charitable donations in a disaster come from money that would have otherwise been donated charitably to a different cause, so many nonprofit organizations were indirectly harmed by this. They had less money to aid the poor, fight disease, etc., and this loss of funds certainly had an impact. Government aid either reduced the money governments would have spent on other uses, or increased deficits.
[edit] "May As Well"
Here's a good way to understand the fallacy: if it is a net good, then why don't cities instigate improvements by evacuating the population and then bombing themselves? The answer should be obvious: because it just isn't worth the disruption to the lives of those involved. Once the tsunami hit, the infrastructure needs rebuilding anyway, so there "may as well" be improvements. Likewise, the shopkeeper may decide that he "may as well" get a better window, maybe double-paned and more energy efficient, and easier to clean. But the improvements are not seen as a net benefit over the unbroken window, or the infrastructure before the tsunami. If the only reason the improvements are being made is because they "may as well" since they're rebuilding anyway, then calling it an economic improvement is a Broken Window fallacy.
[edit] See also
Doctrine of Unintended Consequences
