Christianity and Economics, Part 2: The Parable of the Broken Window

Read Christianity and Economics, Part 1 Here: Why Christians Should Think About Economics

We must not think only about the immediate and seen effect of our choices, while failing to consider the eventual and unseen effect of our choices. This is one of the very first lessons taught in the Bible.

So when the woman saw that the tree was good for food, and that it was a delight to the eyes, and that the tree was desired to make one wise, she took of its fruit and ate, and she also gave some to her husband who was with her, and he ate.

Genesis 3:6

Eve decided to take the forbidden fruit because she desired the seen and intended consequence of her choice. That is, she could see that the tree was good for food, it looked delightful, and it would make one wise. She did not look at the fruit and think “I want to die, so I’m going to eat this fruit.” She ignored the eventual, unseen, and unintended consequences of her choice. Almost every sin imaginable (drunkenness, laziness, adultery, etc.) could be described in terms of prioritizing the seen over the unseen, the immediate over the eventual, and the intended effect over the unintended.

When applied to economics, learning to think about unseen, eventual, and unintended consequences will equip us to recognize the error of most popular economic fallacies. This point can be illustrated by the parable of the broken window. The parable was first introduced by the French economist, Frederic Bastiat, in his 1850 essay “That Which Is Seen and That Which Is Not Seen”, and was further developed the Nobel Prize winning economist Henry Hazlett in his 1946 book “Economics in One Lesson.”

The Parable of the Broken Window

There was a baker who owned a shop. One day, as mischievous kid threw a rock through the front window of the bakery. The baker was understandably upset about the broken window. But then the baker was confronted by one of his friends who encouraged him to think about the bigger picture. Since the baker now has to buy a new window, the window shop down the street will benefit from the purchase. The window shop will have to buy more materials from the glass maker and will also have to pay its workers for the extra labor. It might be that one of these workers uses his extra pay to buy a loaf of bread from the baker.

“Cheer up!” said the baker’s friend. “Not only is this act of destruction not a tragedy, but a more broken windows might be one of the best things for our town’s economy. With more broken windows, the glass store will have to hire more workers, thus creating new jobs. These new employees will eventually become new customers of all of our businesses, which will strengthen our local economy. So the broken window isn’t really a tragedy at all!”

Unfortunately, this clever friend has not told the whole story. After all, if the baker’s window had not been broken, he would have had both his window and his money, money he could have spent for something other than replacing the window. Perhaps he could have bought a new sign for his bakery. Perhaps he could have taken his wife out for a nice dinner. Perhaps he was about the give a bakery employee a raise, but now, since he has to replace the window, he will have to postpone that raise.

Although the broken window may have benefited the window store and glassmaker, their gain was a loss for the sign maker, the restaurant owner, or the bakery employee. Unfortunately, since the window was broken, we will only ever see the new window and the immediate benefit for the window shop. What will remain unseen is how the baker would have chosen to spend his money if the window had not been broken.

What this story illustrates is something economist call “opportunity costs.” The cost of the new window was not simply the dollar price of the purchase. The true cost of the window is the goods or services that the baker would have chosen to purchase if he didn’t have to replace the window. Although we can easily see that the broken window will benefit some, this benefit only comes at the unseen expense of others. In the words of Hazlitt, “The bad economist sees only what immediately strikes the eye; the good economist also looks beyond.”

Broken Windows Everywhere

Unfortunately, like the baker’s friend, many people have a hard time thinking like a good economist. They think only about the benefit they can see, that is, the immediate and intended consequences. What remains unseen is the lost opportunity cost.

For example, its not uncommon to hear people suggest that natural disasters such as hurricanes or tornados, are good for the economy. After all, it is certainly true that disasters create new jobs. Messes must be cleaned, buildings must be rebuilt, windows must be replaced. But every broken widow has a cost. It must come at the expense of those who would have benefited if there had been no disaster.

During times of war, politicians will often celebrate the creation of new jobs and the economic benefits of wartime spending, but they ignore the devastating opportunity costs suffered by those who must rebuild their destroyed property with fewer resources than they started with. It’s the broken window fallacy once again.

The same could be said for any kind of government spending. Governments are not producers, manufacturers, or bakers who offer goods and services in exchange for money. Since governments only get their money from taxpayers, government funded projects must be considered in terms of opportunity costs, that is, the inevitable economic production that was forfeited when taxpayer capital was diverted towards the government sponsored project.

For example, if a government taxes a community to build a new football stadium, it is easy for the local news media to point to a big game, and the businesses which benefit from the large crowds and say, “See! This is what your taxes paid for!” But they will never be able to place a microphone in front of the person who lost their job, or forfeited their family vacation, or had to settle for a high mileage used car because their money was taken through taxes. That’s because all the things people lost when their money was taken through taxes will forever remain unseen.

If not for the taxes, people would have that money to spend or save as they choose. People could have chosen to start new businesses, offer raises to their employees, take their wife out to a movie, give a bigger contribution at church, take their family on vacation, or start a non-profit organization. The possibilities are endless. At the end of the day, people would have chosen what they thought was the best use of the money for them and for those around them.

Every public park, public highway, government funded construction project, and public school have opportunity costs. Even government program designed with the best intentions of helping the poor must be considered in terms of the unseen and unintended opportunity costs, many of which may impact the very people the program is designed to serve. The true cost of any government sponsored project is not the dollar cost, but the best use of the money had it remained in possession of the people from whom it was taken.

Opportunity Costs in the Bible

When Israel asked for a king (1 Samuel 8), they could see the immediate benefit of having someone to fight their battles. They did not listen to Samuel’s warning that the king would only do this at the expense of their sons, their daughters, and the fruits of their own fields. That is, they were deceived into asking for a king because they did not think about the opportunity costs.

In the parable of the talents (Luke 19:11-27), the servant who received only one talent decided to forego the opportunity to create economic benefit because he buried the talent entrusted to him. Therefore the master was upset with him because of the lost opportunity cost.

That’s why it is important for Christians to think like good economists. God desires that we use the talents he has entrusted to us to serve our fellow man, and not to waste them with unproductive work. When Jesus returns, we will all be judged according to how we use God’s resources to further his kingdom. When God entrusts us with talents, we must use those gifts in a way that honors and glorifies him. We must be resourceful with our financial resources, no matter how much or how little we may have. Thinking about the seen and unseen, immediate and eventual, intended and unintended consequences of our decisions will help us to do just that.