Broken Window Theory

Here is a short little story with a lesson at the end. It is such a simple idea, but so many people don't grasp it. Hope this little example helps.

There once was a baker in a small town. Every morning he would get up before everyone else and start baking. by the time the rest of the town woke up and was heading to work his shop was full of all kinds of tempting treats. Everyone that walked past his bakery on the way to their shops was attacked by all the wonderful scents of fresh breads and cookies. In the window you could see tarts and pastries. No one could resist the walk past the baker's shop without going inside. But one day it was different. No wonderful smells drifted down the street as you walked.

You see the baker is sweeping the sidewalk in front of his shop. A small group of people are standing off to the side watching and talking amongst themselves. "Yea, it was a brick right through his big window." "A window like that costs a bit of money." "Well, at least the glassier will have some added business." The little group talked about the $800 dollars that was to be spent on the new window. That now that money would then, in turn, be spent by the glassier on something else in town. On they went with this idea until they all agreed that the baker's broken window wasn't such a bad thing. The $800 it sent through the local economy would give it a little boost. So satisfied, the little group of people left the baker cleaning up broken glass and continued on their errands.

OK, lets look at this idea and see where it leads. If one broken window is a good thing for the economy of the town, why not then break all the windows in town. And while you are at it, burn the town to the ground. Think of all the jobs and opportunities this would create. Framers and plumbers would be needed. Cabinet makers and roofers. And in the end, everyone would have brand new homes and shops. Doesn't quite sound right, does it??

The problem is no wealth is created. Instead of the baker having $800 he was planning to spend on a new shed for his home, he used it to replace the window. The money was just redistributed from the baker to the glassier with no net wealth created for the community. Instead of the community being wealthier by one shed, it lost that wealth in the dumpster behind the bakery as little shards of glass.

The Government's "Cash for Clunkers" program is a broken window with congress throwing the brick. Not a single penny of wealth is created, just redistributed. Lets look at this idea and see where it leads. Why not have the government give everyone 4 grand trade in of their current car for a new car and destroy all the old ones. Think of all the new jobs it could create to make all those new cars. All the new factories built to make them. And in the end we would all have brand new cars to drive. . .

Doesn't sound quite right, does it??