New York Times economic columnist Paul Krugman may be elated, thinking that the blue-city riot-palooza will have major economic benefits.
That’s because there is a long-held economic notion, mostly by followers of economist John Maynard Keynes, that physical damage to buildings and infrastructure—whether natural or man-made—can be a boon to the economy.
The notion was first critiqued by the French free-market economist Frédéric Bastiat. He wrote in 1850: “But if … you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it …” (quoted by the Mises Institute)
So a broken window means money must be spent to fix it. That money gives people work and income they might not otherwise have had.
Here is Krugman’s embrace of the broken windows fallacy, which he wrote shortly after the 9/11 attack:
So the direct economic impact of the attacks will probably not be that bad. And there will, potentially, be two favorable effects.
First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. (also quoted by the Mises Institute)
Well, it looks like Krugman can test his theory. Minneapolis, Seattle, Portland, Atlanta, Chicago, and several other cities may need some new office buildings—including federal office buildings—not to mention small business shops and apartment buildings.
Maybe that’s why the leftist mayors of these cities aren’t stopping the riots, looting, vandalism and arson. Indeed, Portland Mayor Ted Wheeler decided to join the rioters.
Of course, the reason the broken window theory is a fallacy is that taking money from Peter and giving it to Paul so he can spend it doesn’t spur economic growth. Paul wins but Peter loses.
Peter might have spent that money on something too—a new truck, hiring a new employee, enhanced employee benefits, a new computer system, and so on.
Or he might have saved the money, which means Paul could borrow it to spend on a new truck, hiring a new employee, enhanced employee benefits, a new computer system.
Breaking windows robs the owner of the flexibility to put the money to its best economic use. The owner now has to repair the windows; other projects will have to wait.
The economic damage caused by blue-city riots and lawlessness will cost millions, if not billions, of dollars. But many of the small business owners won’t spend the money to repair or replace their establishments because they don’t have it. Sometimes windows just stay broken.
Some may move to safer cities or states so they don’t have to live through the chaos again. And thousands of local, often lower-paid employees will be unemployed.
In short, instead of an economic boost, the result of the broken windows theory loved by so many on the left is just a broken economy.