NCPA - National Center for Policy Analysis

Economic Fallacies in Public Conversation

March 16, 2011

Economic fallacies permeate the public conversation.  For example, destruction is not production -- to claim otherwise is to fall victim to the Broken Window Fallacy, a fallacy that was exploded by Frederic Bastiat almost two centuries ago, says Art Carden, an adjunct fellow with the Independent Institute.

  • The story goes like this: a kid throws a rock and breaks a shopkeeper's window.
  • Someone claims that this will, in fact, make everyone better off because now the shopkeeper has to buy a new window.
  • This creates work for the glazier, who might use the money to buy a new suit.
  • And so it goes: the unanticipated increase in spending works its way through the economy and brings prosperity to all.

Or does it?  The shopkeeper could have done something else with the money had his window remained intact.  Perhaps he would have bought a suit of his own.  Perhaps he would have saved the money.  When a window is broken, we're poorer because of it.

One of the tragedies of government policy is that it systematically distorts the feedback mechanisms that would guide people's decisions.  Through things like government flood insurance, for example, we essentially pay people to put themselves in harm's way.  Rhetorically, we insulate ourselves from some of the consequences by telling ourselves the lie that "at least it's good for the economy," says Carden.

Source: Art Carden, "Walking on Broken Glass?" Forbes, March 12 2011.

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