In 1850, the French economist Frederic Bastiat designed a famous thought experiment around the tale of a boisterous child who smashes his father’s shop window. The distraught shopkeeper is consoled by a witness who claims that the shattered window would at least provide gainful work for a glazier. So, does that make the destructive act a form of economic stimulus?
Not really. The vendor needs to pay the repairer — there is no net gain. But many succumb to the “broken window fallacy” when looking at the economy today. Most recently, commentators have asserted that Taylor Swift’s concert tours have added hundreds of millions to the US and UK economies. What they fail to consider is the counterfactual: how Swifties would have spent their ticket money otherwise.
The misconception highlights our tendency to value what we see, over what is hidden. Just because we witness or measure certain economic activities does not mean they are net value-creating or productive. Indeed, if Bastiat were alive today, he would probably raise a few quibbles over how we value certain activities in our increasingly complex, financialised and service-driven economies.