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.

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

Take care, and be on guard against all covetousness, for one’s life does not consist in the abundance of his possessions.

Luke 12:15

Proclaiming good news to the poor was at the very heart of Jesus’s mission (Lk. 4:18-19; 6:20-25). Jesus continually encouraged his disciples to be ready to give up their earthly possessions (Lk. 6:30). Jesus himself did not place confidence in his earthly possessions (Lk. 9:58, 62; 10:4). Jesus clearly warned that we cannot serve both God and money (Lk.16:13) and that it would be easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God (Lk. 18:24-25).

It’s easy to see why some might dismiss the study of economics as too worldly for a Christian, especially if they read the Bible selectively. However, one should not conclude from Jesus’s teachings that God is an anti-material ascetic. After all, God is the one who created the material world, and he is the one who called it “very good” (Gen. 1:31). It’s hard to see how we can conclude that thinking about material goods is inherently wrong when material goods are created by God.

The Bible itself is full of teachings about material goods. In Genesis 2, for example, before the fall, Adam was instructed to “work” and “keep” the garden of Eden. That means that Adam had to think about how to care for material goods. In Proverbs 6:6-11, the writer instructs us to learn from the example of an ant as it was working to make material provision for itself in the winter by gathering food in the summer. Later in Proverbs 12:11, inspired scripture affirms that material sustenance is produced by work.

The law of Moses is filled with teachings about justice for the poor (Deut. 24:5-22), how to manage earthly goods (Deut. 25:1-5), the importance of using honest weights and measures (Deut. 25:15-18) and tithing (Deut. 26),. The book of Deuteronomy concludes by promising a list of physical, material blessings if Israel is obedient (Deut. 28:1-14) , and a list of material warnings if Israel is disobedient (Deut. 28:15-18). These verses sufficiently demonstrate that God is concerned with all of our existence, including the management of material goods.

Jesus teaches us not to be anxious about physical possessions (Mt. 6:25), but rather to seek first the kingdom of God and his righteousness, then all these things will be added to you (Mt. 6:33). Notice that Jesus does not teach that things are worthless. Rather he teaches that we should not be anxious about material needs, but rather should trust that God will provide for us as we seek first his kingdom and his righteousness. Christians should not be ignorant about material goods, but as they think about material goods, they must remain committed to seeking first God’s kingdom and God’s righteousness.

What is Economics?

Contrary to popular misconceptions about the term, “economics” is not the study of money, resource allocation, or supply and demand charts. Yes, one of the most popular and practical uses of economics is to be able to explain prices – which are quoted in units of money – of various goods and services that are being sold in the marketplace. But economics is not the study of money per se.

Economics is really about solving one of the greatest problems faced by mankind, that is, the problem introduced in the first few chapters of Genesis. The first command that God gives man in the Bible is found in Genesis 1.

And God blessed them. And God said to them, “Be fruitful and multiply and fill the earth and subdue it, and have dominion over the fish of the sea and over the birds of the heavens and over every living thing that moves on the earth.”

Genesis 1:28

God wanted mankind to rule over and subdue creation. That is, they were to take creation from it’s wild, unsubdued state, and tame it into a state that suits our needs and glorifies God. However, with the fall of man as recorded in Genesis 3, this mission became much more difficult.

Cursed is the ground because of you;
in pain you shall eat of it all the days of your life;
thorns and thistles is shall bring forth for you;
and you shall eat the plants of the field.
By the sweat of your face
you shall eat bread

Genesis 3:17-19

This leaves us with one of mankind’s greatest problems. How do we have dominion over this world’s scarce goods without starving to death, killing one another, or both? Learning to think economically help us greatly as we attempt to answer this question.

Economics can be defined as the study of human choices and actions. This includes the study of why businesses are run in a particular way, why the stock market goes up and down, and how oppressive government policies can hurt the poor. But economics also studies cases of simple human interactions, where two people may choose to exchange goods or services directly with each other without using money at all (that is, “barter”).

There are indications in Scripture that humans were designed to interact with one another from the beginning. In creation, God said “It is not good that man should be alone” (Gen. 2:18). From the very beginning the Bible indicates that Adam would have to have someone to help him in fulfilling his mission. This general principle is affirmed in the book of Ecclesiastes.

Two are better than one, because they have a good reward for their toil.

Ecclesiastes 4:9

The church itself is founded upon the principle of people working together. Christians are commanded to assemble together, and encourage one another (Heb. 10:25). In 1 Corinthians 12, Paul teaches about the church being made up of many different people with different gifts and qualities that are all designed to function together.

There are two basic ways for humans to divide up material possessions among themselves. One is by theft and violence. That is, if you have something I want, I could just take it. The other is by voluntary cooperation. That is, you may choose to gift me what I want, or we could voluntarily agree to exchange goods or services.

Not only does the study of economics verify that the second type of exchange leads to more prosperity, but the study of God’s word shows that it also facilitates loving relationships among mankind. When God commands us not to kill, steal, or covet, he teaches us that there is a right and wrong way to interact with one another. The study of economics shows that keeping the commands of the creator is the most effective way to manage the physical resources that he has given us. Or as the book of Proverbs puts it, “The fear of the Lord is the beginning of wisdom” (Prov. 1:7). If we want to prosper in fulfilling God’s command to have dominion over creation in a way that facilitates love for God and love for our fellow man, we dare not ignore what can be learned from thinking about economics.

Introduction to the Christianity and Economics Series

What will follow in this series is not a Bible study. I’m writing with the assumption that Christians understand that the love of money is the root of all evil. I’m assuming that Christians understand the importance of taking care of the poor. I’m assuming that Christians recognize the dangers of laying up treasures on earth. I am not writing this to in any way encourage Christians to prioritize earthly treasures over heavenly treasures.

The purpose of this series is to simply discuss a few basic economic laws, that is, a few basic truths about the world that can be deducted simply from observing that people were created in God’s image with the ability to make choices. Since economics verifies what we are taught in scripture about the management of material goods, I hope to use this series to glorify God for his great wisdom. Since Christians are to love others, my hope is that these articles will help Christians to understand how to more effectively serve others in ways that many non-economic thinkers may miss. I also believe that understanding a few basic economic laws can help us to see through some of the ways that the Devil tries to deceive Christians into thinking they can accomplish good without submitting to what scripture teaches about material goods. I have no interest in debating various government policies from a left vs. right political paradigm. My concern is simply to point out a few basic principles that can be universally recognized regardless of political leanings.

My hope is that this series will help more Christians to recognize a few basic patterns in human behavior, so as to develop a deeper understanding of God’s creation. By so doing, I hope to encourage a deeper respect for God’s wisdom as we make decisions about everything from evaluating grand political ideas, to doing mundane household activities, to helping the church serve the poor in their communities more effectively.