Broken Window Dressing

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I suppose we should just be happy that Peter Gosselin of the Los Angeles Times tries to explain that the predictions about war fixing the shaky economy do not stand on firm ground. Gosselin notes that some predicted a stimulative effect for the post-9/11 clean-up. That didn't happen. Also, few observers foresaw that the increased time and energy spent on domestic security would sap wealth-creating activity in the U.S. in both tangible and psychological ways.

But at no point does Gosselin put the matter in the proper historical context, namely, that Frederick Bastiat figured this all out a couple centuries ago. Bastiat called it the broken window fallacy, the idea that returning stuff to its previous condition somehow represented a net economic gain.

More interesting still, the link between 9/11 and Bastiat was laid out for all to see just days after the attack.

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  1. When I’ve heard people make this “rebuilding is good for the economy” arguments, it helps to ask “Which economy?” U.S. dollars may well be good for the Afghanistan economy, but will not be good for the U.S. one.

    To those who just don’t get it, I recommend they drive their cars right through their garages, damaging vehicle and structure. Won’t they be much better off after fixing them?

  2. It depends on how you look at it. A lock on my door really doesn’t add any positive value, but it does help prevent future economic loss by stopping a would-be thief.

    Ditto for insurance, firearms, burgler alarms and preventing terrorism. This War probably won’t make us richer, but it may make us less poor.

  3. Well, not exactly, Lazuars. Diverting resources to locks, alarms, terrorism prevention, etc., is another opportunity cost–this wealth would be used elsewhere absent the negative activity it is used to prevent. It’s the same story with war. The economic phenomenon of sinking resources into preventing the loss of wealth, or acquiring wealth where the legal framework of property rights is uncertain is generally referred to as rent seeking, and it is in many cases inefficient. Spending money to prevent the loss of money doesn’t make us better off, it just keeps us in the status quo, at best.

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