Natural disasters, terrorist attacks, and
wars have one thing in common: They involve
a lot of destruction. But every time there’s
a natural disaster or a terrorist attack or
a war, it can be virtually guaranteed that
someone is going to come along and say that
there’s a silver lining in all of this.
It’s good for the economy because it’s
going to create jobs. When there’s a natural
disaster or a terrorist attack or a war, we
have to spend money replacing all the stuff
that gets destroyed. This is an application
of what we call the broken window fallacy.
Frederic Bastiat corrected this fallacy in
his early 19th century essay, That Which Is
Seen and That Which Is Unseen. The key point
is destruction does not create prosperity.
Destruction destroys prosperity. Imagine someone
who owns a shop. The shop has a glass window.
Now a kid comes along and throws a rock through
the window so the window’s broken, shattered
glass everywhere. The shopkeeper’s upset.
Why? Because his window’s been broken. He
has to go and pay the glassmaker in order
to get the window replaced.
Now some people might come along and say well,
no, look, you should all be smiling because
this is going to create jobs. You spend money
on new glass. The glassmaker earns this money.
He can then spend it at restaurants, and he
can spend it on new clothes. He can spend
it on things that he likes. That’s going
to create jobs for other people. This money’s
going to circulate, and we’re all going
to be richer as a result of the fact that
this kid has thrown a rock through a window
and now we’ve had to replace a window.
Let’s think for a moment about what the
policy prescription would be if it were in
fact true that this is a good idea. What we
should do instead of trying to prevent people
from breaking things, instead of trying to
prevent people from destroying property, we
should in fact be enlisting armies of kids
with rocks to go around breaking windows to
destroy things because, after all, if this
were to require a new spending that would
make us richer, that would make us better
off, that would be the path to prosperity:
destroying things, breaking things and then
spending money to replace them.
What we’re doing when we indulge this kind
of thinking is we’re focusing our attention
on what is seen but we’re not taking account
of what is not seen. What we don’t see is
what the shopkeeper would have used that money
for if he hadn’t had to replace his window.
He might have used it to buy a suit. This
would have created an opportunity for a tailor.
The tailor then could have spent the money
on something else. He could have used it to
buy groceries. This would have created opportunities
for grocers. Maybe he would have saved it;
then the money could be lent to someone who
wants to start a new business. He could have
done something else that would have created
job opportunities for other people. The world
would have still had the window and it would
have had the benefit of all of this additional
activity that would have gone on had the window
not been broken in the first place. On net,
society is worse off to the tune of one window.
Whenever we actually destroy resources, that’s
precisely what we’re doing. We’re destroying
stuff. We’re not creating wealth. It’s
important to remember that it’s production
that creates prosperity and not destruction.