Wednesday, July 13, 2011
The Broken Windows Fallacy Revisitied
"Destruction does not create prosperity; destruction destroys prosperity." So the next time your hear a friend or political think there is a silver lining in some natural catastrophe or propose a government program like Cash for Clunkers that destroys property that is still productive remember this video and the broken windows fallacy.
It should also be pointed out that creative destruction is the good one -- destructive destruction is the bad one. Creative destruction is when more efficient, more productive and higher quality goods and services replace less efficient, less productive, lower quality goods and services due to capitalism. This continuous process of renewal is frightening and unpleasant to those in industries that are being supplanted. For instance, no one would argue we should have protected buggy whips or the whale oil industries. Still, these changes were painful for the people working in those industries. Today's buggy whip and whale oils makers would have organized into special interest groups and lobbied for political protection to preserve their way of life.
Creative destruction makes everyone better off in the long run. Stimulus packages and government largesse are the rocks thrown through the panes of progress. Every dollar we spend on something foolish is a dollar we can no longer spend on something productive and prosperity enhancing.