Parable Of The Broken Window

Published Mar 22, 2024

Title: Parable of the Broken Window

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Definition of the Parable of the Broken Window

The Parable of the Broken Window, introduced by French economist Frédéric 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”), illustrates a common misunderstanding in the field of economics regarding opportunity cost and economic activity. The parable describes a scenario where a shopkeeper’s window is broken by a vandal. Observers consider the incident somewhat beneficial, arguing that spending money to repair the window will boost the economy by providing work for the glazier. However, Bastiat points out that this reasoning ignores what is not seen; specifically, the shopkeeper would have spent that money on something else, had the window not been broken, thus contributing to the economy in a different way.

Example

Imagine if the shopkeeper had planned to use the money, now spent on repairing the window, to buy a new suit. The tailor now does not get the business he might have had, and the economy, in general, is not any richer for the transaction. Furthermore, the shopkeeper is left poorer by one window and must forego the suit or some other expenditure he would have preferred. The parable demonstrates how destruction does not benefit the economy but merely diverts resources from one use to more immediate, often less productive use.

Why the Parable of the Broken Window Matters

The significance of the Parable of the Broken Window lies in its critique of the idea that economic activity alone is a sign of economic health. It challenges the notion that spending—for any reason—is beneficial for the economy, emphasizing instead the importance of productive investment and the concept of opportunity cost. By illustrating the hidden costs associated with destruction, Bastiat teaches a valuable lesson about the importance of considering both seen and unseen consequences of economic actions. This principle has broad applications, from evaluating the real costs of war to understanding the implications of natural disasters or arguing against policies that encourage wasteful expenditure for the sake of activity.

Frequently Asked Questions (FAQ)

How does the Parable of the Broken Window relate to modern economic policies?

Modern economic policies, particularly those involving government spending or regulation, can be analyzed through the lens of the Parable of the Broken Window. For example, policies that destroy value or divert resources from more productive uses—under the guise of job creation or economic stimulation—can be critiqued for their unseen costs, such as higher taxes, inflated prices, or missed opportunities for alternative investments.

Can the Parable of the Broken Window be applied to environmental policies?

Yes, the Parable of the Broken Window is highly relevant to environmental policies. It highlights the fallacy of destruction as a means of economic benefit and supports the argument for environmental protection. Policies that encourage resource depletion or environmental degradation for short-term economic gain fail to account for the long-term opportunity costs, such as lost ecosystem services and the future expense of remediation.

Is there a counterargument to the Parable of the Broken Window?

A common counterargument is that in cases of high unemployment or underutilized capacity, spending—even on repairs—can stimulate economic activity by putting idle resources to work. However, this argument overlooks the broader implications of opportunity cost and the long-term benefits of investing in productive, rather than destructive, activities. Essentially, while there may be temporary gains, the principle that destruction does not create wealth remains valid.

How does the concept of opportunity cost tie into the Parable of the Broken Window?

Opportunity cost is central to the Parable of the Broken Window. It represents the benefits an individual, investor, or society forfeits as a result of choosing one alternative over another. In the parable, the opportunity cost of fixing the broken window is whatever else the shopkeeper would have spent that money on—be it a new suit, investing in his business, or any other goods or services that would have yielded utility or profit. The parable illustrates that economic decisions should account for these unseen costs to ensure resources are allocated toward their most valued uses.