“Neighbor,” I said, “I am overwhelmed. You’ve got great info but, can’t you just give me a really simple example of a commonly accepted fallacy and its effects?”
“Sure,” said my neighbor. “This is a classic. A guy heaves a brick through the window of a store and takes off. The store owner runs out. A crowd gathers. They all gape at the hole in the window. After a while, somebody in the crowd feels the need for philosophic reflection. Several members of the crowd remind each other, and the store owner, ‘Hey, there’s a bright side. It’ll make business for some glazier.’ They begin to elaborate on this idea. ‘How much does a new window cost, $500? That’s expensive but, if windows were never broken, what would happen to the glass business?’ The thing is endless. ‘The glazier will now have $500 more to spend with other merchants. These, in turn, will have $500 more to spend with still other merchants.’ And so ad infinitum. That smashed window will go on providing money and employment in ever-widening circles. The logical conclusion is, if the crowd were able to draw it, the guy who threw the brick, far from being a public menace, was a public benefactor.”
“Well, I certainly can’t buy the public benefactor bit, but there sure seems to be quite a bit of logic in the other parts,” I said.
“Take another look,” said my neighbor. In its first conclusion, the crowd is right,. It will immediately mean more business for some glazier. But the store owner will immediately be out the $500 he has to pay to replace the window. Instead of having a window AND $500, he has only a window, or, because he was planning to buy a tailor-made suit that very afternoon, instead of having BOTH a window AND a new suit, he has only a window and NO suit. If we think of the store owner as a part of the community, the community has lost a new suit, and is that much poorer.”
“But, the glazier has gained some business. Isn’t that a plus?” I asked.
“Nope. It isn’t. The glazier’s gain of business is merely the tailor’s loss of business. No new employment has been added. See, the crowd is thinking there are only two parties involved; the store owner and the glazier. They totally forgot the potential third party, the tailor. They forgot him precisely because he’ll never enter the scene. He’s out of sight. They’ll see the new window, but they’ll never see the new suit. It’ll never be made. They’ll never see the tailor. They see only what is immediately visible to the eye.
I replied, “I may be a bit thick in the head here, but how does the broken window fallacy reflect what is going on in the world?”
“It’s this,” said my neighbor. “The broken window fallacy, under a hundred disguises, is the most persistent in the history of economics. Every day it’s solemnly reaffirmed by great captains of industry, chambers of commerce, union leaders, editorial writers, columnists, TV commentators, statisticians using the most refined techniques, professors of economics in our best universities. In their various ways they all promote the advantages of destruction—and it is all smoke and mirrors.”
“Thank you, Neighbor,” I said. “At long last, I think I’m getting it. I know there must be much more, but let’s leave that for another conversation.”
“Sure,” said my neighbor. “This is a classic. A guy heaves a brick through the window of a store and takes off. The store owner runs out. A crowd gathers. They all gape at the hole in the window. After a while, somebody in the crowd feels the need for philosophic reflection. Several members of the crowd remind each other, and the store owner, ‘Hey, there’s a bright side. It’ll make business for some glazier.’ They begin to elaborate on this idea. ‘How much does a new window cost, $500? That’s expensive but, if windows were never broken, what would happen to the glass business?’ The thing is endless. ‘The glazier will now have $500 more to spend with other merchants. These, in turn, will have $500 more to spend with still other merchants.’ And so ad infinitum. That smashed window will go on providing money and employment in ever-widening circles. The logical conclusion is, if the crowd were able to draw it, the guy who threw the brick, far from being a public menace, was a public benefactor.”
“Well, I certainly can’t buy the public benefactor bit, but there sure seems to be quite a bit of logic in the other parts,” I said.
“Take another look,” said my neighbor. In its first conclusion, the crowd is right,. It will immediately mean more business for some glazier. But the store owner will immediately be out the $500 he has to pay to replace the window. Instead of having a window AND $500, he has only a window, or, because he was planning to buy a tailor-made suit that very afternoon, instead of having BOTH a window AND a new suit, he has only a window and NO suit. If we think of the store owner as a part of the community, the community has lost a new suit, and is that much poorer.”
“But, the glazier has gained some business. Isn’t that a plus?” I asked.
“Nope. It isn’t. The glazier’s gain of business is merely the tailor’s loss of business. No new employment has been added. See, the crowd is thinking there are only two parties involved; the store owner and the glazier. They totally forgot the potential third party, the tailor. They forgot him precisely because he’ll never enter the scene. He’s out of sight. They’ll see the new window, but they’ll never see the new suit. It’ll never be made. They’ll never see the tailor. They see only what is immediately visible to the eye.
I replied, “I may be a bit thick in the head here, but how does the broken window fallacy reflect what is going on in the world?”
“It’s this,” said my neighbor. “The broken window fallacy, under a hundred disguises, is the most persistent in the history of economics. Every day it’s solemnly reaffirmed by great captains of industry, chambers of commerce, union leaders, editorial writers, columnists, TV commentators, statisticians using the most refined techniques, professors of economics in our best universities. In their various ways they all promote the advantages of destruction—and it is all smoke and mirrors.”
“Thank you, Neighbor,” I said. “At long last, I think I’m getting it. I know there must be much more, but let’s leave that for another conversation.”
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