What Can We Learn From the Broken Window?

Last week, I bought a new truck. It was only slightly used, not too many miles. As I was driving on I-85, southbound toward this great little place called Auburn, Alabama – home of the Mises Institute as well as what I wish was the best football team in the Southeastern Conference – something flew out of nowhere and collided into my perfect squeaky-clean windshield.

As I angrily cursed the damn government roads, I observed the rupture in my window. Whatever had hit it – whether it be a pebble or an unusually dense fly - had left a noticeable crack reaching nearly all the way across my windshield. I knew right then and there that I was going to need a new one.

Well, I got to Auburn and I sat at the bar with one of my friends, ranting about how I just bought the truck and now I’m already going to have to turn around a buy a new windshield. He took a sip of his beer, looked at me and smiled. “Look at the bright side!” he said, patting me on the back.

“What the hell do you mean?” I asked.

“Your broken window will give another job to all the window makers,” he said. “And it will provide jobs to the mechanics who have to install it. Doesn’t that make you at least a little less upset? Think of the net good it creates!”

“No. Why would it? I have to pay for the damn thing. Not to mention, I was saving for a new pair of shoes.” I pointed to the old New Balances on my feet. The things were practically falling off. “Now I have to buy a new window.”

As I mulled over the dirty layer of worn mesh and rubber that were hardly protecting my feet from the nasty bar floor, I had a thought. “Also,” I started, “If I didn’t have to buy a new window, and I could buy a new pair of shoes, wouldn’t I be giving a job to the shoemaker?”

My friend, not inclined to think about this any further, shrugged and returned to his beer.

Now, of course, none of this actually happened. I wish I had a new truck, but I am fortunate enough to say that the windows of the vehicle I do drive, in fact, are perfectly fine.

No. This is a story I took from great economists Henry Hazlitt and Frédéric Bastiat. I might’ve just doctored it a little bit to be more suitable for the 21st century. But essentially the same scenario can be found in Chapter II of “Economics in One Lesson,” which (by the way) you can get delivered to you FOR FREE.

For those who aren’t familiar with this already, this (or more specifically the claim made by my friend that my broken window is actually a good thing) is referred to as “The Broken Window” fallacy and is one of the central mistakes people make in the modern world when it comes to making claims about the effectiveness of the government’s role in the economy.

Those familiar with the fallacy know exactly what I’m talking about.

Of course, no one is going around literally bashing windshields with a baseball bat as an act of charity to the glass industry (at least I hope not), but this fallacy does infest many of the arguments made by today’s so-called “civil servants.”

The Fallacy Explained

Why, exactly, is the argument wrong? Just in case you didn’t get it the first time, I’ll explain it here briefly. Its proponents argue that the destruction of something useful, i.e., my broken windshield, can actually result in some sort of “net gain” or “common good.” Even if vague abstracts such as these do exist, are definable and are measurable (and that’s questionable), how could we logically conceive that any “net gain” would come out of removing something of value to me?

Yes, there may have been a “net gain” in the income of the window-maker and the mechanic (assuming other factors didn’t, in the meantime, reduce their usual profits), but that does not imply a “net gain” for society as a whole.

The money spent on the window, if the window had not been broken, wouldn’t have evaporated in thin air. It would rather have been spent on other things – new shoes, a new computer, rent, etc.

That being said, the window maker and mechanic’s gain was the shoemaker, computer engineer and landlord’s loss. And then there’s me. If my window had not been broken, I’d have a windshield and a new pair of shoes. Now I just have a windshield.

The Fallacy Applied

“That’s idiotic!” you say. “No way people are making this sort of argument in real life!”

You’re right. It is idiotic. But people really do make this argument all the time, specifically when it comes to government intervention. Every time a politician gets on television and spouts rhetoric like “we need to create jobs” or “fight poverty” this is the argument that is underlying their claim.

They believe – at least they say they do - that by taking from some people (via taxation or inflation) and spending their plunder on other things (welfare, warfare, etc.), they can benefit society as a whole.

But they forget that in order to spend on whatever they think should be valuable to us, they must first obtain the means to spend. In other words, they must either tax us, acquire debt on our part or print money, i.e., cause inflation, which is effectively a hidden tax in itself.

Regardless of how they do it, when they take from us, they remove from our ability to spend on our own volition – to use our money and the value of that money in a way that is suitable to whatever goals (or “ends”) we have in mind.

They look over the fact that value, or the importance one places in something, is entirely subjective. Don’t get me wrong. There are many things that are objectively true for all people. Value simply isn’t one of them. What one person values is completely different than what another person values. There is no objective way to arrive at an indisputable value measurement for one thing that is shared among all people.

For example, I might be willing to spend $25 on a book from the Mises Bookstore, whereas you may rather spend that money on a ticket to a basketball game. I’ll be honest. I know it’s an unpopular opinion, but I personally find basketball to be dreadfully dull and I can’t see myself ever voluntarily spending even $1 to go see a game. It has just never succeeded to entertain me.

I do enjoy reading, however, even dense books about political philosophy. And I would choose to do that over attending a basketball game. Unless you’re one of the extremely few people who are the same way, I imagine that this is blatant proof that value is entirely dependent upon the person.

So, what if I somehow managed to gain political power by getting elected to Congress and logrolled a bill into law that proclaimed everyone must pay $25 for a book from the Mises Institute? Not only would that be hilariously ironic, but that’s $25 you can no longer spend on basketball tickets, the movies, a night out or whatever it is you’re into.

“Now, the Mises Institute can provide more jobs,” I say. “This is the price we pay to the common good.”

No! Every job the Mises Institute can provide from their drastic increase in revenue is a job every other industry that would’ve otherwise earned the money instead cannot provide. Not only that, but everyone who was forced to purchase a book that they didn’t want, no longer has money to spend on things that they do want and now are left with no new things, but books.

Not all examples would be that clear. But the fact of the matter is, since value is subjective, no one in government – no politician or bureaucrat – has the ability to tell us what we do or do not value. They are entirely incapable of making those calculations and they always will be.

Only free and voluntary exchange – that which is absent of any forced and deceptive intervention – can allow each individual to choose for himself what he is willing to give up for what he wants from someone else.

Not only are the central planners who tout the “public good” or “net gain” vocabulary incapable of accurately measuring and even defining such things, they are also incapable of adding to such things as they claim by using force. They cannot take something from someone else, give it to another and say that they have produced a “net gain.”

Regardless of whether or not the latter valued what he received, the former had to be hurt for him to receive it. Further, everyone that would have otherwise received the former’s business would be worse off than if he had not been hurt.

People purchase what they value. And forcing them to purchase something they wouldn’t have otherwise been willing to pay for (or stealing their money and purchasing it yourself) is to deviate resources – not only money, but time, labor, capital, etc. – away from the production of goods and services that are valued, and towards those that are not. It is, put simply, waste to a level of drastic magnitude.

And this is a problem with State spending, State regulation and all forms of taxation in general. The fallacy underlies it all. Only the completely free operations of the market can see that resources flow away from the production of goods and services that aren’t valued and towards those that are. The further the State defers us from this ideal, the greater is the opportunity cost – the loss of what could have been, if resources were allocated the most effectively.

In other words, unless the State ceases to intervene in the economy, which it arguably can’t do while existing at all, we will always be less prosperous than we otherwise would be.