Seeing the Unseen | The Broken Window Fallacy

Economics: Lesson 115

Imagine you are walking down a cobblestone street in a city, and on that street is a bakery shop with a big front window where all the tasty treats and pastries are on display to lure customers in. A young hooligan comes along and chucks a brick into the bakery window, shattering it to pieces, and then quickly runs off. The baker storms out furious and a crowd of people start to gather around and stare at the broken window. To make the baker feel better one man says to look on the bright side, that window is going to cost $50 to fix, and that is now making business for the glazier. The rest of the crowd also tries to cheer up the baker and elaborate on what the first man said.

“Yes! Now the glazier will have $50 to spend on food and pay his employees.”

“And those employees now have wages to spend on new clothes, new paint for their house, or something fun like a piece of candy.”

“Mr. Willson, the candy maker, will sure be glad to get some more business since he is thinking about expanding and building a second candy store across town.”
And so on and so forth.

The whole crowd then concludes that the broken window will provide countless money and employment all over the city and that the young hooligan actually provided a service. But the baker did not cheer up and as he went to clean up the broken glass says he was planning to buy a new suit that day, but now has to use that money to fix the broken window.

So you see, if the window had not been broken and the baker went and bought a new suit for $50, the tailor would have had $50 to pay the fabric shop, buy some food, and a gift for his wife. The crowd that tried to cheer up the baker was not wrong in the conclusion that the destruction of the window would provide business for the glazier. But, if the window had not been broken, the city would have had a bakery with a window, a baker with a new suit, a tailor with some food, and on and on. The city would have been better off in the long run.

The mistake was to look at what was seen and not what was unseen.