THE BASIC ECONOMIC LESSON EVERYONE SHOULD LEARN:  HAZLITT’S BROKEN WINDOW FALLACY

READ THE FOLLOWING PARAGRAPH EXCERPTED FROM ECONOMICS IN ONE LESSON (Harper, 1946) BY HENRY HAZLITT. DECIDE IF THE ANALYSIS PRESENTED IS “GOOD ECONOMICS” OR “BAD ECONOMICS.” THEN, BE PREPARED TO DISCUSS YOUR DECISION IN CLASS.

                A young hoodlum, say, heaves a brick through the window of a baker’s shop.  The shopkeeper runs out furious, but the boy is gone.  A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies.  After a while the crowd feels the need for philosophic reflection.  And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side.  It will make business for some glazier.  As they begin to think of this they elaborate upon it.  How much does a new plate glass window cost?  Fifty dollars?  That will be quite a sum.  After all, if windows were never broken, what would happen to the glass business?  Then, of course, the thing is endless.  The glazier will have $50.00 more to spend with other merchants, and these in turn will have $50.00 more to spend with still other merchants, and so ad infinitum.  The smashed window will go on providing money and employment in ever-widening circles.  The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick far from being a public menace, was a public benefactor.

 

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Hazlitt's Broken Window Fallacy came from the writings of the great French economist Frederic Bastiat (1801-1850). 

This is an excerpt from Selected Essays on Political Economy:

"What Is Seen and What Is Not Seen"

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen.

The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

1.2

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both

the effect that can be seen and those effects that must be foreseen.

1.3

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa.

Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.