The parable of the broken window was introduced by the French economist FrÃÆ' Â © ric Bastiat in 1850 of his essay
This parable attempts to show how the opportunity costs, as well as the law of unintended consequences, affect economic activity in a way that is not seen or ignored. Some conventional economic measures, such as GDP, can exclude the negative effects of capital destruction, while including replacement economic activity. Thus, breaking a window can increase GDP, but endangering the economy.
The belief that destruction is good for the economy, the result is known as broken window error or glazier error .
Video Parable of the broken window
Imagery
Bastiat's original parable of broken windows of Ce Qu'on voit et ce qu'on ne voit pas (1850):
Have you ever witnessed the anger of a good shopkeeper, James Goodfellow, when his careless son broke the window? If you have been present in such a scene, you will surely witness the fact that every audience, there are even thirty of them, by mutual consent apparently, offer to this unfortunate owner an unchanging consolation - "This is a bad wind that does not hit whom is good, everyone should live, and what will happen to the glass if the glass is never broken? "
Now, this condolence form contains all theories, which will come out well in this simple case, seeing that this is exactly the same as what, unfortunately, governs most of our economic institutions.
Suppose it costs six francs to fix the damage, and you say that the accident brought six francs into the glazier trade - it boosted the trade by six francs - I gave it; I have no word to oppose it; You are reasonably fair. Glazier came, did his job, received six francs, rubbed his hands, and, in his heart, blessed the negligent child. All this is what is seen.
But if, on the other hand, you come to the conclusion, as is often the case, that it is a good thing to break the windows, which causes the money to circulate, and that the industry push will generally be the result. you will require me to call, "Stop there! Your theory is limited to what is seen, it does not take into account what is invisible."
It does not seem that as our shopkeeper has spent six francs on one thing, he can not spend it on the others. It does not seem that if he does not have a window to replace, he might change his old shoes, or add another book to his library. In short, he will use his six francs in some way, which has been prevented by this accident.
Maps Parable of the broken window
Interpretation and evidence
Bastiat argument
The theorists of the Austrian School, and Bastiat himself, apply the parable of their damaged windows in different ways. If it were known that the little boy was actually employed by a glazier, and paid the franc for every window he solved. Suddenly the same act would be considered a theft: the glass window broke the window to force people to hire. Yet the facts observed by the audience remain true: the glazier advantage of business at the expense of bakers, tailors, and so on.
Bastiat argues that society supports activities that are morally equivalent to a glazier who employs a boy to crack a window for him:
From where we come to this unexpected conclusion: "People lose the value of things that are not destroyed;" and we must agree on a proverb that will make protectionist hair stand - To destroy, to destroy, to waste, not to encourage national work; or, more simply, "destruction is not profit."
What would you say, Moniteur Industriel - what would you say, the students of the good MF Chamans, who had calculated very precisely how much trade would be gained by burning Paris, from the number of homes will it be necessary to rebuild?
Bastiat does not handle production - he handles wealth supplies. In other words, Bastiat not only looks directly but at a longer effect than breaking the window. In addition, Bastiat does not take into account only the consequences of breaking windows for one group but for all groups, for society as a whole.
Austrian theorists quote this mistake, saying it is a common element of popular thinking (for example, the "Cash for Clunkers" program, etc.). The twentieth-century American economist Henry Hazlitt devotes a chapter to him in his book Economics in One Lesson .
Disaster costs
The broken-window scenario is also used as an analogy for destruction by natural disasters. Disasters disrupt economic activity. The economic effects of natural disasters vary.
Disasters can kill people and destroy property. Rebuilding can create a spike in economic activity, and hence a short-term boost to gross domestic product (GDP), but it is difficult to argue that disaster "growth" means disaster beneficial to the victims. The full cost of disaster is not captured by GDP statistics. In particular, the dead and the destroyed capital are not measured in GDP. However, recovery causes purchases and sales, which are calculated against GDP.
Countries are more likely to have falling GDP after the disaster if they have more unemployment, more poverty, less effective government and local and national institutions, and weaker economic and diplomatic connections. Countries are more likely to have a GDP boost and recover quickly from disasters if they retain skilled labor and the ability to mobilize resources for reconstruction, including resources from outside the disaster area. On the one hand, rapid recovery has been linked to rapid insurance and aid payments, with the contrast between Hurricane Andrew and Hurricane Katrina as an anecdotal example. On the other hand, a slow recovery has been blamed on predatory behavior, with those who are unharmed or less-disadvantaged by disasters that take advantage of those who are more disadvantaged.
Repeated districts tend to invest more in skills and education (perhaps because this is preferred over risky investments in infrastructure, which may be destroyed again), and they tend to have higher total factor productivity (possibly because infrastructure destroyed in Disaster replaced with better infrastructure, such as, for example, in Great Fire of London). These trends could in theory lead to long-term economic benefits (which could lead to GDP growth).
There is some evidence that geological disasters are more detrimental to the economy than climate-related disasters, in the long term. Geological disasters, such as landslides and earthquakes, occur with little warning immediately and kill many people. Climate-related disasters, like hurricanes, are more predictable on a day to hour scale, and kill fewer people. Such warnings save people, but not immovable property. This shows that killing people does not harm the long-term economy, while destroying capital is not harmful to GDP growth.
"Destroy a number of physical capital, but leave a large number of knowledgeable humans whose brains still retain dynamic economic culture and technology, and physical capital will tend to reappear almost spontaneously" - George Horwich, Purdue University
Even in disasters with some physical injuries, most of the economic costs may be a public health effect (about a tenth, in the case of 2007 floods in the UK). The economic cost of disruption to children's education is significant. Mental health problems can be triggered or aggravated by the suffering suffered during a disaster. Health advice to minimize psychosocial stress has been given to disasters. While public health costs can contribute to economic activity and GDP growth, the growing demand for medical or educational assistance is unlikely to be seen as profitable.
Opportunity for war costs
Arguments can be made that war is a contributor to society, as it historically often centralizes the use of resources and triggers technological advances and other fields while reducing unemployment. Increased production and employment associated with war often leads some to claim that "war is good for the economy." However, this belief is often given as an example of a broken window error. Money spent on war effort, for example, is money that can not be spent on food, clothing, health care, or other industries. The perceived stimulus in one economic sector comes at a direct but hidden cost to other sectors.
Bastiat himself opposes the claim that hiring people to become soldiers is inherently beneficial to the economy in the second chapter of The Visible, and the Unseen , "Dissolution of the Forces".
Menurut Hazlitt:
There is no advantage in having a plant destroyed by a shell or bomb unless it is worthless or obtains a negative value with depreciation and obsolescence.... Plants and equipment can not be replaced by an individual (or socialist government) unless he or has acquired or can obtain savings, capital accumulation, to make his successor. But the war destroyed the accumulated capital.... Complications should not divert us from the recognition of the basic truth that the undesirable destruction of something of real value is always a net loss, a catastrophe, or a disaster, and whatever contradicting considerations in a particular instance, can never, on a net balance , grace or blessing.
Criticism and defense
Criticism
Interpretation assumes that the "window" has a positive value and that replacing it is not a good investment. In a broader scope, balancing factors can reduce or even eliminate the cost of destruction. For example, new technologies developed during the war and forced modernization during postwar reconstruction can cause old technology to be worthless. Also, if two shopkeepers keep their "window" outside the point where it will maximize their profits, shopkeepers whose windows are damaged are forced to make good investments - increasing their comparative advantage, or rather reducing their comparative losses. Regardless, while the destruction of real value is unlikely to be a net loss, it is of course still a misfortune, not a blessing. Others argue that damaged windows may not result in a reduction in expenditures by victims, but rather on the reduction of excessive savings. Blogger Econometrics Andy Harless wrote in 2009, "The logic of limited resources applies only when the economy uses the most limited resources, and if there is a loose resources, we just need to mobilize some loose resources." The reductio ad absurdum of violating 100 windows, then, applies only when underutilized resources have been used, and tailors are forced to divert resources from more productive means.
It has been argued that the parable, when intuitive, may not fit the actual evidence. Some economists argue that natural disasters can often produce higher GDP growth in both the short and long term. (See Ã,§ Disaster cost, above.)
Defense
Bastiat and Austrian theorists argue for the theory of subjective values, stating that the value of a product is determined by the consumer or owner. Therefore, if the window has a negative value, it is because the owner is already expecting corruption. If the window is old, and the newer window has a larger value (determined by the store owner's own rating), then the net increase in the economy is the difference between the old and new window values. Bastiat and Austrian economists also believe that the depreciation and other losses of the value of the goods reduce the net value of the economy by the amount of value reductions.
Source of the article : Wikipedia
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