Looking at Orchard River through a broken window

Christopher Pang

Bastiat's Broken Window Theory

Bastiat's Broken Window Theory

The broken window fallacy was first expressed by a French economist, Frederic Bastiat. Bastiat used a story of a broken window to illustrate how destruction does not benefit the economy.

In Bastiat’s example, a boy breaks the pane of glass of a shop and runs away. Onlookers gathered and stared at the broken window with quiet satisfaction that the boy has helped stimulate the economy while the shopkeeper resigned himself to being an unlucky victim of having to pay the glazier (window repair man) to replace the broken window.

It was then further assumed that the glazier would spend the extra income on something within the local economy, thus resulting in a multiplying effect with a small act of mischief. The boy, instead of being labeled a menace, was now a public benefactor.

At first glance, it looked like the crowd was right in its conclusion. It would no doubt be more business for some glazier. The shopkeeper however would have spent money replacing a window which he otherwise did not need to and be poorer by the cost of repair which he could have used to increase his level of satisfaction, by spending it on new apparels or buying new machines to improve his business operations.

Similarly, it is common to hear comments such as “the floods helped the auto repair industry”. There is frequent overlooking of what otherwise the money could have been utilized more productively by the car owners. What seemingly looks like a gain to the auto repair industry is actually a loss incurred by the car owner.

A car owner, whose automobile’s engine was damaged by the flood, would be contributing to the GDP because he has to repair his damaged automobile. If his intention was to buy himself a new laptop before the flood, he could no longer spend that money on the laptop. Is he better off than before the flood? Clearly the answer is no. He has the same car with more wear and tear and no laptop. He is now out of pocket by the amount of repair costs which he could have used to purchase a new laptop.

Solely focusing on what has happened and overlooking what could have happened is misguided economic thinking. The repaired automobile is seen by the economists and onlookers but the laptop will never be taken into account as it was never purchased by the car owner. The salesman that could have earned that commission on the new laptop, the computer hardware firm, and the freight services firm that shipped the laptop from China to Singapore will not be part of this economic calculation. As it was never visible to the eyes of these people, this loss will be buried into the sub consciousness of the car owner forever.