Tuesday, June 8, 2010

Economics Storytime

The Story of the Broken Window and The Invisible Tailor

Once upon a time there was a Baker who lived in a town filled with happy philosophers. One day a vandal came through the town and threw a rock through the window of the baker's shop. The Baker came out to survey the damage and a crowd of Happy Philosophers gathered. They began to philosophize about the damage done to the Baker. Then one cheerful fellow pointed out that this broken window would really help the community. "Because, you see, the Baker must now hire the Glazier to put a new window into his shop." And this, of course, is good for the Glazier, who will then take this money earned and spend it in another business. This chain of events will stimulate the economy of the happy town, and make everyone happier.

But the Happy Philosophers could not see the one who would be hurt by the broken window. You see, the Baker had planned on using his money to buy a new suit. He was going to employ the Invisible Tailor to make it for him, who in turn would take this money earned and spend it in another business. This chain of events would have stimulated the economy of the happy town. But no one could see the Tailor or the suit he made...since it never was produced due to the Baker's lack of funds.

MORAL of the STORY: If the Government claims that they can stimulate the economy by spending 780 billion dollars to build bridges, don't forget all of the Invisible Shopkeepers, who won't be employed by all of the Taxpayers, who must be taxed to pay the Builders to build the bridge.

Bloggers Note: This story is not mine, just the retelling of it. I heard it first from Walter E Williams on the Rush Limbaugh show, but you can find it on the internet. Just google "The Broken Window Fallacy".

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