The broken window fallacy is an argument against the idea that destructive things such as wars and natural disasters are good for the economy.The spending associated with wars or natural disasters can boost the reported GDP of a nation. This leads to the logical assertion that "war is good for the economy." This can be shown to be a logical fallacy because it neglects the opportunity cost of a war.If a nation spends $1 trillion dollars on a war, this will stimulate the economy by paying soldiers and defence contractors. However, spending $1 trillion always stimulates the economy therefore war in itself isn't stimulative. For example, a strong case can be made that spending $1 trillion on infrastructure projects would have a greater stimulative effect because it puts money into workers pockets and creates competitive advantages such as efficient transportation or inexpensive energy.
Parable of the Broken WindowThe Parable of the Broken Window is a 1850 argument by political economist Frederic Bastiat. The parable begins with a shop keeper who has a shop window broken by his son. Bastiat outlines the argument that the situation is good for the economy because the money spent to fix the window is stimulative. The argument is then shown to be a fallacy that ignores opportunity costs. In other words, the money spent to fix the window can no longer be spent to improve the shop in more productive ways.Next: Opportunity Cost
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