There is a lot of hooplah surrounding the interpretation of Bastiat’s Broken Window Fallacy. Economics bloggers from all over the interwebs are quoting Bastiat and squabbling about what he actually meant when he wrote That Which is Seen, and That Which is Unseen.
For those unfamiliar, see the video below:
Hazlitt points out in the chapter that the point is wealth. Destroying the window may seem like it is good for the economy because the glazier gets some money out of it (i.e. on a large scale, more glazier jobs are created). But this thinking misses the jobs that could have been created if the shopkeeper were to spend his money on something else, like Playstation 3’s. Up to now, it is just a matter of spending money one place or another; there is no net wealth effect. But the point of the parable is grasped when we realize that with the broken window, the community in which the shopkeeper is apart only gets a new window out of the circumstance. Without breaking the window, though, the shopkeeper is free to spend his money on the Playstation 3, so the community gets both the window and the Playstation 3. Here is the net wealth effect.
The point is wealth. Destruction cannot create more wealth – this is the topic of the next chapter.