Broken Window Fallacy

Here’s a decent explanation of the Broken Window Fallacy followed by a scene from The Fifth Element, where the villain explains the same concept in a slightly exaggerated, science-fiction fashion. He is named Zorg after all.

Basically the Broken Window Fallacy follows that if a window is broken, it’s not as bad as it seems because the owner of the window will need to have it repaired, forcing him to hire someone, thereby stimulating the economy. The window repairman needs to buy a window, further stimulating the economy, and so on. Sound good so far?

Now for the fallacy. The problem with the broken window argument is that it doesn’t consider that the owner of the window would have spent his money on other economic activities besides a new window if it weren’t broken. So in effect, the stimulative effects of the broken window are cancelled out by the lack of cash from having to fix the window in the first place.

We can see this effect in the economic stimulus measures, especially the Fed’s quantitative easing policies, which further erode the purchasing power of the dollar. While they are intended to stimulate the economy, the efforts are cancelled out the weakening of the dollar. In addition, stimulus measures like job programs also fall into the same trap, as taxes need to be raised in order to finance these programs, leading to less available money to spend.

I know the whole idea sounds very Grover Norquist and anyone who reads this site knows that I’m basically the polar opposite of fuzzy Grover. But while I have a lot of disdain for the colossus corporations who seem to control our lives more and more each day, I also hate a government that shifts around the money only to score political points.

Robbing Peter to pay Paul is no way to get a country back on track. Especially if Peter is already broke to begin with.

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