Kerby Anderson

Broken windows and destroyed buildings in cities like Minneapolis, Seattle, and Portland provide a test of the “broken windows” economic theory. Dr. Merrill Matthews writes about this because some economists failed to learn the lesson from the French economist Frédéric Bastiat.

I have written about this in the past, but here is a quick summary. Bastiat told the story of a shopkeeper with a broken window who must pay the glazier six francs. This seems like good news because it stimulates economic activity. The glazier appreciates his good fortune. The problem is that the shopkeeper could have spent the six francs on something else: new shoes or a book for his library.

The problem with the “broken window” economic theory is that you are taking money from Peter to pay Paul. It may stimulate some economic activity. But the net result is that Paul wins while Peter loses.

Breaking windows, vandalizing buildings, and burning some buildings down will provide economic activity for builders and contractors. But someone will have to pay. Either the money will come from the city budget, which means that those funds will not be available for other city projects, or the money may come from insurance companies, which means those of us with similar insurance policies will pay more in the future because of destruction in these cities. Sadly, for many shopkeepers without insurance, there won’t be money to rebuild. The broken windows will remain broken.

Finally, there is another cost. Some of the people who lived in these cities and neighborhoods will move to safer cities and states. They won’t want to live through the chaos again. Workers who were employed won’t find work in the destroyed areas of the city, so they will either go on unemployment or leave the area to find work elsewhere. These broken windows might merely signal a future broken economy.