Broken window fallacy
Topic: Schools of Economic Thought and Economic Laws · NCERT: Beyond NCERT
Meaning
The broken window fallacy is the mistaken belief that destruction is good for the economy because repairs create work and spending. Frédéric Bastiat explained it in "What Is Seen and What Is Not Seen" (1850). Everyone can see the glazier's new work, but no one sees what the shop owner would have bought with that money instead. Society ends up where it started, with one window, and has lost the other thing it could have had. This lost alternative is the opportunity cost. GDP adds the rebuilding spending but does not subtract the wealth destroyed.
Example
After a flood, a district spends ₹500 crore rebuilding roads and houses, and GDP rises. But that ₹500 crore could have built new schools instead. The district is not richer. It has only replaced what it lost.
Don't confuse with
- Keynesian deficit spending: Keynes argued for extra government spending in a slump, when workers and factories sit idle. The broken window fallacy is about treating the destruction of existing wealth as a gain.
Related concepts
- Baumol's cost disease
- Jevons paradox
- Goodhart's law
- Campbell's law
- Parkinson's law
- Lump of labour fallacy