The Broken Window Fallacy

Discussion in 'Economy' started by ShackledNation, Aug 1, 2011.

  1. ShackledNation
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    ShackledNation Libertarian

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    It appears our minds today are infected by the broken window fallacy more than ever before. Bastiat tried to put this fallacy to rest centuries ago, but we failed to remember his warning. Today, many people try to counter the fallacy with Keynes's theory of Idle Resources. His theory was incorrect, but that is for another topic. For now let us take a look at the biggest fallacy in modern economic thought. Here is an excerpt explaining the broken window fallacy from the book Economics In One Lesson by Henry Hazlitt.

    Hazlitt continues to explain why such a conclusion is false. The reasoning behind the above false conclusions is the fallacy of the broken window.

    And there you have it. This fallacy is what caused people to claim that World War II grew the economy because destroyed houses had to be rebuilt. Because purchasing power was directed at rebuilding what was destroyed, it could not be directed at creating new wealth that did not exist before. The destruction of anything of real value is always a net loss to the community. And curing an economy by taxing and spending is precisely such destruction.
     

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