The Broken window

The parable of the Broken Window was first expressed by the great French economist, Frederic Bastiat. Bastiat used the parable of a broken window to point out why destruction doesn't benefit the economy. The story goes like this:

A young hoodlum, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furiously, looking for the miscreant, 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. 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? Two hundred dollars? That will be quite a sum. Then, of course, the thing is endless. The glazier will have $200 more to spend with other merchants, and these in turn will have $200 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. After all, if windows were never broken, then the glaziers would soon be out of business.

The fallacy of the onlookers' argument is that they considered only the benefits of purchasing a new window, but they ignored the cost to the shopkeeper. As the shopkeeper was forced to spend his money on a new window, he could not spend it on something else. For example, the shopkeeper might have preferred to spend the money on bread and shoes for himself (thus enriching the baker and cobbler), but now cannot because he must fix his window.

Thus, the child did not bring any net benefit to the town. Instead, he made the town poorer by at least the value of one window, if not more. His actions benefited the glazier, but at the expense not only of the shopkeeper, but the baker or the cobbler as well. Moreover, the benefit to the glazier is relatively small, because most of what he charges is to compensate him for his tedious and strenuous labor, as well as the materials he uses.

The same thing happens here when we pas a law mandating that everyone gets free health care, or in the case of ObamaCare, that everyone is forced to purchase health insurance. People rejoice because they are getting "free" somethings, without reflecting that the net cost to society is high.

Suppose it was discovered that the little boy was actually hired by the glazier, and paid a franc for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows in order to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business at the expense of the baker, the cobbler, and so on. Bastiat argues that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him (specifically the burning of Paris):

Whence we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end—To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."

You reflect on how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?

I have spent the last few weeks posting on how certain members of the financial industry profited through the buying off of politicians on both sides of the aisle, getting those politicians to change the rules of the game so those particular members profited immensely, and then getting out of the game before the now gamed system fell apart.

We see a repeat of history as the health care and health insurance industry game the system to their own benefit, and use the government to do it.

Subsidizing health insurance with taxes upon the rich, many will say, is justified because the rich can well afford the extra taxes. They ignore the fact that the rich do not simply roll around on top of large piles of money. What happens is that the things and services that the rich man would have bought will go unpurchased. The employees who produced the things that the rich man used to purchase (before the tax) will be laid off as demand drops.

You cannot make an economy grow by taking money from one sector and giving it to another, just as you cannot stand inside of a bucket and lift yourself off the ground by frantically tugging on the handle.