23. Broken Window Theory [SER]

Thought experiments involve considering a hypothesis, theory and even principle, with the objective of thinking about its eventual effect. Such a thought experiment had been diagramed by Frédéric Bastiat. This figure considered himself a liberal theorist and political economist. His most notable contributions to economics have been his development of “opportunity costs”, and his witty “Broken Window” parable, which is the focus of this article. Considered an economic journalist, in lieu of an actual economist, Bastiat indicted the “unseen consequences” which arose from government policies. Bastiat’s proclivity towards the Austrian School of Thought can be illustrated by Friedrich Hayek, who believed Bastiat was an important voice, especially through his piercing insights. Bastiat believed that humans were prone to looking at the immediate consequences of a policy, oblivious of its long-run effects. This would undermine economic freedom, he professed; causing us to miss many benefits; which we fail to fathom. The roots of “opportunity costs”, can be found in this contention.

Frédéric Bastiat’s parable of the broken window is a prime economic thought experiment. In the parable, an infant breaks his father’s pane of glass. Bystanders would claim that what the child did, was advantageous — financially speaking. This is because the father would be forced to pay a glazier to repair the broken pane of glass. Having accumulated more wealth, the glazier would invest his money into certain assets; this would lead to the multiplier effect (enlargement of the money supply). Therefore, this stimulates the economy. Yet, Bastiat sees this event from a different standpoint. He prefaces that by breaking the window, the father would axiomatically lose a portion of his disposable income; which he could have invested in other luxurious tangible assets (i.e. shoes, rings et cetera). He will now find himself unable to afford these goods. Therefore, although breaking a window pane is profitable for the glazier, it is the exact opposite for the other industries. In addition, replacing a previously purchased good can be classified as a maintenance cost, which does not stimulate production. Thus, destruction and cost according to Bastiat is economically unviable.

The Broken Window Theory Gif

Picture Source: http://www.ablate.com.au/wp-content/uploads/2013/08/Broken_Window_theory_by_enjeru.jpg

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