Is the Road to Economic Growth Paved with Broken Windows?

Columnist Paul Krugman is credited with a line of thinking that should be debunked before it gains traction. Krugman wrote after 9/11 that the terror attacks could “do some economic good” because “all of a sudden, we need some new office buildings.”

Before the real Krugman could weigh in on the recent East Coast earthquake and hurricane, a Fake Krugman wrote that “…we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage.”

Such statements may seem plausible to those without much knowledge of economics. But the fallacy was exposed as early as 1850 in Frédéric Bastiat’s essay, That Which Is Seen and That Which Is Not Seen.

The argument seems to be that paying money to replace a broken window creates more prosperity than having the original window and spending the money on something else. But, as economist Sandy Ikeda asks, “If destruction is so good for an economy, why wait for a hurricane or a bombing raid? Why not just bomb your own cities?”

We can all “see” the new window. But whatever the money could have gone for instead remains “unseen.” No net economic benefit results from replacing the broken window. In fact, the economy is worse off because we now have just a window, not a window and the money that went to replace it.


Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Posted by at 05:00 | Posted in Economy, Individual Responsiblity | Tagged , , , , | 17 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    This article raises a good point.  National accounting doesn’t concentrate on the wealth side of the ledger but more on the income side.  Then too, although politicians want to make it the be all and end all, job growth is only one element of economic prosperity.  Much more important new jobs create healthy amounts of value added.

    This article also relates somewhat to the current job creation proposal by some in government, that of government funding new energy conservation programs.  I have some experience in this area having worked at an electric utility.  The thing we discovered at the utility is effective conservation only comes over many years of investment; it’s not really something to be ramped sharply higher in order to create gainful employment.  One primary reason involves this concept of the broken windows in part. 

    For a homeowner, ripping out an existing working furnance, for instance, costs significant capital cost (even after netting government subsidy) and often the energy savings only make back this capital cost over several years or more.  Then, too, many homes are structured a certain way; and trying to retrofit them with a new energy technology involves an extra layer of capital costs.  For one reason or another, conservation is just not a great mechanism to bring fiscal stimulus.  Democrat politicians don’t seem to grasp these practicalities, maybe too blinded by their “good” intentions.  (Bama maybe is a slow learner, too:  He’s already joked once this year:  “I guess shovel ready wasn’t so shovel ready.”  Yet he continues to entertain such things not “shovel ready.”) 

  • IwantPerry

    Government out of the way is the only path to prosperity. The only path.

  • Anonymous

    Just because someone beat Krugman to the earthquake argument doesn’t mean he doesn’t believe it. Krugman does, after all,suffer from fuzzy libtard thinking. I mean, he supports Obozo and everything.

  • Rupert in Speingfield

    I’m sorry but this line of thinking is, in fact, something Krugman has actually advocated for.

    Recently Krugman advocated the government fake an alien invasion. Krugman claimed the stimulative effect would pull us out of the recession in 18 months.

    Obviously Krugman isn’t smart enough to realize by his theory: phantom WMD’s, like phony aliens, quickly transform Bush into economic genius were Krugmans nitwitery true.

  • valley person

    Academic studies have shown time and again that events that cause a lot of physical damage do stimulate the economy by freeing up capital otherwise underutilized.  We had this debate here months ago and I referenced a number of analyses that confirm this. Its counter-intuitive, but true.

    The conservative mind seems to locked into the idea of wealth as a fixed substance (i.e. gold) rather than as something created from the ruins of previous materials. 

    • Stoned

      Well, we could start of the recovery then by smashing up Damascus.

    • Stoned

      Well, we could start of the recovery then by smashing up Damascus.

      • the real valley person

        Not much here to smash up, and there won’t be if the local crazies keep torpedoing plans. I do have a rotting lean to on my barn you can come and help dismantle if you are inclined. 

        • Steve Buckstein

          Dismantling a “rotting lean to” is not the same as breaking a still-functional window. The concept of depreciation is useful, and spending money to maintain infrastructure or replace outdated infrastructure can be productive. What this post is about is the false assumption that simply replacing things that get “broken” is good for the economy.

          • valley person

            I know. But the analysis I cited for you months ago still holds. Replacing older capital, even before its time, is usually stimulative. This is in large part because new capital is more productive than the old. So even if the old has life left in it, replacing it can increase productivity.    I know this is counter intuitive, but it has been demonstrated by economic analysis.

          • Steve Buckstein

            I don’t recall the analysis you cited months ago. Feel free to repost here.

          • the real valley person

            I will take the time to dig it out and post it only if you promise to read it and respond to its conclusions. 

        • Steve Buckstein

          Dismantling a “rotting lean to” is not the same as breaking a still-functional window. The concept of depreciation is useful, and spending money to maintain infrastructure or replace outdated infrastructure can be productive. What this post is about is the false assumption that simply replacing things that get “broken” is good for the economy.

  • valley person

    Academic studies have shown time and again that events that cause a lot of physical damage do stimulate the economy by freeing up capital otherwise underutilized.  We had this debate here months ago and I referenced a number of analyses that confirm this. Its counter-intuitive, but true.

    The conservative mind seems to locked into the idea of wealth as a fixed substance (i.e. gold) rather than as something created from the ruins of previous materials. 

  • rj dowl

    we just came over rt 138 where a large crew is building a bike path down the mountain from Crater Lake under the Am Recovery and Investment Act. Anyone know what is being spent–the flagman had a good laugh with us about his 66 hrs–good overtime. we’re happy for him but a bikepath???# priority in a hurtin’s state rjd

    • the real valley person

      What’s wrong with building a bike path?  Seems like a good use of public money to me.

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