Natural disasters, terrorist attacks, and wars
have one thing in common:
they involve a lot of destruction.
But every time there's a natural disaster
or a terrorist attack or a war
you can be virtually guaranteed that someone is going to come along
and say that there's a silver lining in all of this.
It's good for the economy because it's going to create jobs.
When there's a natural disaster or terrorist attack or a war,
we have to spend money replacing all the stuff that gets destroyed.
This is an application of what we call the broken window fallacy.
Frederic Bastiat corrected this fallacy
in his early 19th century essay
"That Which is Seen and That Which is Not Seen."
The key point is that destruction does not create prosperity.
Destruction destroys prosperity.
Imagine someone who owns a shop.
The shop has a glass window.
Now a kid comes along and throws a rock through the window.
So the window's broken, shattered glass everywhere.
The shopkeeper's upset. Why? Because his window's been broken.
He has to go and pay the glassmaker
in order to get the window replaced.
Now some people might come along and say,
well no, look, you should all be smiling
because this is going to create jobs.
You spend money on new glass.
The glassmaker earns this money.
He can then spend it at restaurants.
And he can spend it on new clothes.
He can spend it on things that he likes.
That's going to create jobs for other people.
This money is going to circulate and we're all going to be richer
as a result of the fact
that this kid has thrown a rock through a window.
And now we've had to replace a window.
Let's think for a moment about what the
policy prescription would be
if, it were in fact true, that this is a good idea.
What we should do,
instead of trying to prevent people from breaking things,
instead of trying to prevent people from destroying property,
we should, in fact, be enlisting armies of kids with rocks
to go around breaking windows, to destroy things.
Because, after all, if this would require a new spending
that would make us richer, that would make us better off.
That would be the path to prosperity.
Destroying things, breaking things,
and then spending money to replace them.
What we're doing when we indulge in this kind of thinking
is we're focusing our attention on what is seen
but we're not taking account of what is not seen.
What we don't see is what the shopkeeper would have used
that money for if he hadn't had to replace his window.
He might have used it to buy a suit.
This would have created an opportunity for a tailor.
The tailor then could have spent the money on something else.
He could have used it to buy groceries.
This would have created opportunities for grocers.
Maybe he would have saved it.
Then the money could be leant
to somebody who wants to start a new business.
He could have done something else
that would have created job opportunities for other people.
The world would have still had the window.
And it would have had the benefit of all this additional activity
that would have gone on
had the window not been broken in the first place.
On net, society is worse off to the tune of one window.
Whenever we actually destroy resources,
that's precisely what we're doing,
we're destroying stuff, we're not creating wealth.
It's important to remember that it's production
that creates prosperity, and not destruction.