An important class of exceptions to the broken window fallacy.

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Frederic Bastiat's Broken Window Fallacy claims to show that claims of benefits to destruction are wrong. But there are plenty of reasons why there can be strong benefits to destruction: so strong that rational economic actors destroy things all the time.

A simple example is my neighbor's house. It was razed to the ground, and then rebuilt to huge benefit. My neighbor sold the house to a contractor for $400,000. The contractor spent $400,000 more to demolish the house and build two enormous condos on the site. He sold the two condos for $600,000 each, making a total of $400,000 profit.

If a firebug had burned the house down instead, the economics would be much the same: maybe even less if it saved costs for the demolition.

One of the assumptions in the Broken Window parable is that the window is replaced with the same window. But it could be replaced with a better window: nowadays one that is more energy efficient. That could easily pay for the value of the broken window by itself. So we don't need to expect waste from a broken window unless for some reason we think it is already an optimal window.

Suboptimal usage of resources is all around us: throwing them away and replacing them with more efficient usage is often rare enough that a "broken window" situation might improve things. My neighbor could have used her property for the two condos for decades: the land was underutilized. There are tons of appliances such as lightbulbs, refrigerators and heaters that are so inefficient that their replacements would easily pay for themselves. Yet consumers tend to be ignorant, satisfied, or not willing to make the investment until government programs encourage them to.

Other examples of this principle (fixing suboptimal usage) include:

  • Any renovation.
  • "Creative destruction" in capitalism, where existing firms are destroyed in competition.
  • Redistribution of land to those who will use it, as during the American Revolution.
  • Redevelopment of Europe after WWII destruction.
  • Requiring environmental safeguards (emissions controls, etc.)
  • Safety requirements for employees.