The Parable of the Broken Window was introduced by French economist Frederic Bastiat in his 1850 essay “Ce qu’on voit et ce qu’on ne voit pas” (“That Which We See and That Which We Do Not See”). He illustrates why destruction, and the money spent to recover from it, is not actually a net benefit to society. This seems self-evident, but is confusing to many.
The parable seeks to show how opportunity costs, as well as the law of unintended consequences, affect economic activity in ways that are unseen or ignored. The belief that destruction is good for the economy is consequently known as the Broken Window Fallacy.
In a nutshell…
The fallacy of the onlookers’ argument (which sees the broken window as somehow beneficial to the economy) 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 [who broke the window] 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, the bookseller, and/or the cobbler as well. Moreover, the benefit to the glazier is relatively small, since most of what he charges is to compensate him for materials and labor.
To those who say this doesn’t matter because “the government” will provide the money, you are exactly the kind of sheep that government loves… and vice-versa. Every dollar that government prints out of nothing makes all of society poorer by yet one more dollar.