Hazlitt and the Broken Window Fallacy

So, um, Henry Hazlitt, Economics in One Lesson. We did the preface last time, or the one lesson last time. This time we've got the next couple of chapters. How did they land for you? Make sense? Not make sense? What did— how did it work?

I think they made sense, and I think it went off of the chapter that we read 2 weeks ago. Um, in the last part of that chapter, it said that we would apply that lesson In further chapters, and I think we did that this week, which was interesting.

Got it. Does it make sense? I would— would you say it's obvious that— well, what do you think? What do you make about the broken window? Do you think that if somebody throws a rock through a window and breaks the window, that that creates jobs?

Well, it certainly does something. It The baker or whoever owned that shop, they need to buy new— a new window, which means business for the window person. It's called like glazier or something, which means business for whoever the glazier buys the glass from. I don't really know how that works. Overall, it creates jobs and makes waves in the market, but I think one of the main points of that lesson was that It's counterproductive since you're going backwards in time, um, and those jobs are being used to go back to where you were instead of doing something new, like buying that suit that Baker wanted or had been saving up for.

Got it. So, um, if somebody said that, hey, to create more jobs, we should break all the windows in town, what would you say to them?

I would say no, because that's counterproductive.

No, fair enough. But I guess the question is, well, first of all, people often want jobs. And so you can say it's counterproductive. And okay, Lana says it's counterproductive. How would you explain to them more carefully and more detailed why it's not? Suppose, suppose you've got, you know, teenagers or young 20-something people who really want jobs, maybe they want to, you know, they're unemployed, they want a job so they can, you know, buy a home and raise children and everything, and they're really frustrated at the lack of jobs, and they say, look, I'm a window maker, let's break lots of windows so I get lots of jobs. How would you explain to them, other than saying it's unproductive, why that's not in their long-term best interest?

Uh, I mean, are they just gonna keep smashing windows forever? And it's, it's not long-term because, um, you just— I mean, I guess I'm just repeating what I said earlier because that's mainly what I got. But, um, if you just keep smashing windows and that's where all of your jobs come from and that's all you're doing, um, then you're benefiting off of destruction and you're not helping anybody move forward. And, oh, and maybe it's not good long-term because it's just the same things going on over and over again, you mean? Like nothing changes?

So, not to disagree, but I guess in some ways it feels as if in order to answer this person properly, you need some kind of a theory of What makes an economy productive? Does that seem fair enough?

Yeah, I think so.

So maybe let's play around with your intuitions there. What do you think makes— what constitutes productivity both on an individual basis and then economy-wide? What is productivity? You said it's destructive rather than productive. What does it mean? How do we know what's productive?

My first thought about a productive economy is that overall everything is moving forward and getting better. So like, you know, maybe better technology, better healthcare, better institutions. And that means making stuff and going forward and Making new jobs, things like that.

So you have some sense that the right direction is better stuff, more better stuff, and therefore destruction's not good. But why can't we— suppose this unemployed window maker, window fixer, glazier says, look, Ilana, I get that you want more good stuff. Just let me break a few windows, fix a few windows. That way I can get more work, buy a home for my family, and so forth. You can go ahead, do your making things better kind of thing. Why can't he break and fix windows while you're busy with your making things better kind of thing? Why can't we have both?

I mean, I guess he could. There's nothing stopping him. I don't really know how he would break the windows, but Um, windows are probably gonna break anyways eventually.

I missed what you said. What was the last sentence you said?

Oh, um, I said that there's, there's really nothing stopping him. He can— I guess he can break windows if you want, and everything else can move forward, but, um, windows are always going to break eventually.

So do you think that he's contributing in his own way to a more successful economy?

I mean, if he's doing his job in fixing windows, then I guess you could say so. But because you can't really tell why the windows are broken or if they were broken on purpose by him.

In which case, it seems like then doctors, in order to get more work, should be making people sick. Maybe doctors should put germs in the water supply and get lots of people sick. So there's lots of work for doctors. Would that help?

It would help them, but not anyone else. So that's also a little unethical in my opinion. And I feel like there will always be people who need help and people who are sick. So it basically just be if they wanted more than what they need.

Got it. So one of the things I want to try to connect is the first lesson. Hazlitt had said the whole art of economics is to see the unseen. And so in some ways, clearly, you know, you have a strong intuition that breaking windows is bad. In the case of doctors, making people sick is bad. But I'm trying to get you to think economically in terms of what is unseen. So if the window— the glazier breaks the windows, fix the windows, he gets more work. Voilà. But what is unseen if economics is seeing the unseen? What is not seen in that transaction and the breaking and fixing windows or getting people sick and making people well?

Maybe that the money or everything just goes in a loop over and over. If people get sick over and over and windows break over and over, is that what you're getting at?

I'll go ahead and help you. There's— you mentioned it briefly, and Hazlitt mentions it. But, you know, the idea is, I think you, at one point you were talking about if the baker has to pay for the broken window, then there are other things he can't do with that money, whether it's buy himself a suit or bake more baked goods or get better equipment. That is, the money he spent fixing the window is money that could not be used for other things. Does that make sense?

Yes. Yeah, I remember that.

Yeah, and I think that, that turns out to be a very, very powerful insight. Have you ever heard of the term opportunity cost?

Yes, I have.

Do you remember what it means?

Yeah, it's like if you choose to do one thing, that you're— then you're missing out on the opportunity to choose another thing or do another thing.

Yeah, and so applied in this particular situation, If the baker chooses to fix his window and he kind of needs to, then he's losing out on the opportunity to buy new shoes for his family, new equipment for his baking shop, you know, any things that would either help his family or his business. And so I think Hazlitt would say that, you know, I'm going to try to help you go beyond your strong intuition that of course destroying things is bad, producing things is good. Yeah. But the opportunity cost, that is, when resources, when capital or money, whatever you want to call it, we can go into that, goes towards repairing damages rather than new things, then the new things, the productivity associated with the new things is lost. Does that make sense?

Yes, that makes sense. And I was, I was even thinking about that before. I just like glossed over it when you said the unseen. I was like, what could I not be seeing?

But I

understand.

Yeah, I would say a lot of the economic way of thinking that Hazlitt is going to try to get you to do is to think systematically about opportunity costs. That is the unseen. And the reason they call it opportunity cost is, you know, okay, my window's broken, I fix the window, I see the window, the fixed window, hurrah. I don't see, and perhaps nobody sees, the shoes that his kids didn't need to have, or the better baking machine that he didn't have. That is, the thing that did not happen is invisible, whereas the broken window and the fixing the window, totally visible. Makes sense?

Yes, that makes sense.

So yeah, Hazlitt is going to lean in hard in terms of, and then he wants you to, anytime somebody says, let's do this, or we should do this, or this thing was good, Maybe, you know, fixing the window was a good thing, but what didn't happen? Do you see that as kind of a style of thinking you could learn to cultivate?

Yes. Yeah, I think so.

Okay, I want to just touch bases quickly on the other chapter, and then we'll see if we want to read more forward. But the other thing is, when government spends money to do things, so often people want the government to spend money to do things like create a beautiful new school or beautiful new gym. Maybe they want to create a new wrestling program, and so the school creates this gorgeous new gym for the wrestling program. Is there anything unseen with that, or to put it differently, are there opportunity costs associated with giving the wrestlers a better new gym?

Well, yeah, since you're giving the wrestlers a new gym, maybe you can't give another sport a new gym or fix another sport's training facility or invest more into their traveling or anything. So I feel like there's always something, always opportunity cost, especially in that example.

There you go. I would say you totally get that. And again, a lot of economics is doing this 10,000 times more, a million times more. That is, um, kind of let you off the hook for today. But, uh, I think if you see that that's what he's getting at in terms of applying This, what is seen, what is unseen, and it's mostly opportunity cost. I haven't read this book in a long time, so it could be there are examples he uses that maybe are not normally opportunity cost, but I think it's mostly opportunity cost. And so you always think— and part of this is because in public debate, when you read public debates, people say, let's spend money on this good thing. And very often, yes, there is this good thing. No doubt about this good thing. Yeah. But the question is always, what about the other things? And then it gets tricky. How do you evaluate? You know, maybe the wrestlers really do need a better gym, and to heck with the volleyball players. You know what I mean? Yeah. Just saying they're unseen doesn't tell us what we should or shouldn't do necessarily. But Hazlitt would say if we don't think about the unseen, we're definitely going to be making flawed decisions. Makes sense.

Yes, that makes sense.

All right, cool. In which case, uh, I'll look ahead and give you a couple more chapters to read for next week, and have a wonderful week in the meantime.

Okay. Sounds great. Thank you.

You're welcome. Bye-bye.