Wow, I am really glad that Mike and Tyler both posted about that ridiculously stupid USA Today story! One doesn’t need to be an economist to recognize that the broken window fallacy is just that, fallacious. This type of argument is one of my biggest pet peeves, and I actually said to the Knowledge Spouse the other night, “gee, I wonder when we’ll start seeing news articles about how these hurricanes are creating all sorts of economic opportunity.” But the fact that they are creating opportunities for people to profit from cleaning up and rebuilding doesn’t mean that this economic activity creates any net new value.
Economists of the Austrian School and Civil Libertarians argue that the “broken window fallacy” is extremely common in popular thinking. For example, after September 11, 2001, some economists suggested that the rebuilding in New York would stimulate billions of dollars of economic activity, which would provide a net benefit to the United States economy, which was in recession at the time. But libertarians argue that this was an example of the broken window fallacy, since it ignored the billions of dollars in assets which were totally destroyed as a result of the attack. If the World Trade Center should be rebuilt exactly as it was before, the world would have a World Trade Center, whereas without the September 11, 2001 attack, the world would have not only the World Trade Center, but also all the good things that could have been done with the resources now spent at rebuilding it (not to talk about all the lives and assets lost with the WTC).
Austrian Economists, and Bastiat himself, applied the parable of the broken window in a more subtle way. If we consider the parable again, we notice that the little boy is seen as a public benefactor. Suppose it was discovered that the little boy was actually hired by the glazier, and paid a dollar for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows in order to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business, and so does the baker, the cobbler, and so on. Bastiat suggested that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him.