Stimulus and the broken window fallacy

As the President gets ready to propose yet another stimulus I thought it might be nice to review a centuries old retort to government spending as a solution to economic ills called “the broken window fallacy”. First proposed by 19th century Frederic Bastiat a French classical liberal theorist, political economist. It’s a short video but one worth watching and remembering when a neo-liberal proposes more government spending.

This video was assembled by Sam Selikoff, an economic student at Boston College. Here is his blog. He writes:

As an amateur Austrian economist, I often find it difficult to clearly and concisely explain differences in first principles to people who have been trained as mainstream economists. Austrian economics notably devotes much more time and energy to elaborating the philosophical fundamentals of economic science than mainstream and neoclassical economics does, and this may partially explain why talking about first principles with a mainstream economist often leads nowhere.

Wikipedia defines Austrian Economics as:

The Austrian School is a heterodoxschool of economic thought that emphasizes the spontaneous organizing power of the price mechanism.[citation needed] Its name derives from the identity of its founders and early supporters, who were citizens of the old AustrianHabsburg Empire, including Carl MengerEugen von Böhm-BawerkLudwig von Mises, and Nobel laureateFriedrich Hayek.[1] Currently, adherents of the Austrian School can come from any part of the world, but they are often referred to simply as Austrian economists and their work as Austrian economics. They generally advocate a laissez faire approach to the economy.[2]

Criticized by both the left and the right including Paul Krugman and Milton Friedman, it is considered outside the mainstream, but then it is well worth knowing. At any rate here is the broken window fallacy.


6 replies
  1. Anne-EH
    Anne-EH says:

    In other words, the broken window theory creates a chain reaction result. In other words, goverment makes a “mountain” out of a “mole hill” .

  2. Dimsdale
    Dimsdale says:

    So, it was the riots that kept Britain’s credit rating at AAA status?
    Now I know why most criminals are Democrats!? 😉

    • Dimsdale
      Dimsdale says:

      Logic and liberalism are mutually exclusive concepts.? The logical liberal is an oxymoron, particularly in the case of economics.

  3. sammy22
    sammy22 says:

    Great sloganeering. I read: “Criticized by both the left and the right including Paul Krugman and Milton Friedman, it is considered outside the mainstream”. So how has this become part of the admin’s economic policy?

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