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“The Broken Window Fallacy”: Why Government Stimulus Spending Will Keep The Unemployment Rate High


In our busy days, it is all too easy to fall into the trap of hearing (and believing) the latest headline and its associated spin. For some reason, three minute videos can quickly and easily remove these ‘spins’ without the need for a PhD. In today’s 3:06 un-spin, the broken-window-fallacy is addressed as the seen versus unseen impact of the idiocy of a broken-window’s (or war, or destroying homes, or…) positive impact on an economy is explained in cartoon style. The sad fact is that this fallacy remains at the core of mainstream policy-making and as the video notes, the government’s ‘creation’ of jobs via public works programs (or any number of stimulus-driven enterprises) it does so at the expense of the tax-payer via higher taxes or inflation and that ‘spending’ which would have otherwise gone to new fridges or iPads is removed and this does nothing to significantly improve aggregate demand (should there be such an amorphous thing) and in fact (as we recently noted here and here) leaves us more and more dependent on the state for corporate profit margins leaving any organic growth a dim and distant memory.

 

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