Economics Week 23 Broken Window Fallacy

Prompt: “Explain the broken window fallacy.”

The broken window fallacy is a misconception that destruction stimulates the economy. If someone were to smash a shops window, the fallacy states that the repairs of the window ultimately do good for the economy. The shop keep has to pay a glass worker for a new window, and that improves the glass workers business.

The problem with the idea that this is economically stimulating is there’s always an unseen. The unseen purchases and investments the shop keeper would have spent the money on, if his window wasn’t broken. He had to spend it on repairs, and although this is good for the glass maker it isn’t good for the business’s that would have been paid had the window never been broken. It forces the shop keeper into spending his money in a way he wouldn’t have needed to otherwise, and thus not only does the shops owner lose money but so do the business’s he would have otherwise supported.

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