We are all familiar with Bastiat’s Parable of the Broken Window, but I recently realized there is a similar parable that also needs to be discussed. While we see the broken window fallacy all over the place, I see the following fallacy just as often, I have even been guilty of it myself. Since I recently figured out the flaw, I have seen examples of it all over the place.
In this parable, there is no punk kid throwing a rock through a window, instead we have a kindly benefactor, who donates free windows to a town to anyone who needs one. They aren’t the highest quality window, in fact they are cheap, but they do the job. For many low income people, the free window is a godsend. Even many middle class people would say, “I need a new window, and free is good enough.” Sure, people with fancy windows will continue to buy those.
Everyone in the town rejoices at first, “Free windows!” But then people realize that the glazier industry has been destroyed. A few high end artisans are unaffected, but the rest of them find themselves unemployed. What seemed like a nice gift was actually destructive, no?
No. Yes, the glaziers are hurting. But the money that was previously going to them is now going to the shoemakers and the grocers. Their business is booming. The glaziers still have skills, they can find other jobs, although they won’t be making as much as they did at their previous job. If you calculate it all out, you find that the economy of the town has increased by the value of the free windows. Just like in Bastiat’s parable, the net cost is the value of the broken window. It sucks to be a glazier in both parables, either due to loss of a job or people stopping the window breaking punk before he can act again.
So how does this parable apply to our world? I see it mentioned a lot with regard to African aid. Apparently New England Patriot 19-0 t-shirts donated to Africa destroy the clothing manufacturing in those nations. And that is possibly so. But they shift to farming or international finance or something else. Or not, they are still going to benefit by the value of the t-shirts. The benefit is dispersed, while the pain is noticeable.