Liberty is Prosperity

Wednesday, September 07, 2005

Is the Broken Window a Fallacy?

This is the substance of an email I sent to Walter Williams regarding his piece, Economic lunacy.

I may have gotten up on the wrong side of the bed this morning because I find myself pondering whether or not the Broken Window is really fallacy.

That it is fallacy is beyond question if we are only talking about the physical window.

The argument here is that perhaps there is economic benefit if you consider the relational effects of the "broken window".

Physical objects are a manifestation of a complex web of human relationships. A break in the physical can lead to a break in the relational.

Specifically, in the case of Katrina, it is conceivable that the productivity of the new New Orleans could exceed the productivity of the old New Orleans by a sufficient margin to warrant the added investment occassioned by the tragedy.

The quick counter argument is that, if the investment was warranted, it would have been made anyway.

This counter argument fails to take into account the potential of a disaster to precipitate a significant reordering of the relational dynamics surrounding the physical capital.

In the case of New Orlean, the city of my birth, the relational order was so broken that only a catastrophic event may be able to change it. Katrina has shown a bright light upon the defects of the city that have heretofore been mostly hidden.

While the physical cost of rebuilding is a loss, perhaps the gains of a potential new order in the city will more than offset those costs.

Of course, this is theoretical. I will be much surprised if the new New Orleans does not make the same sort of mistakes as the old, and perhaps many new mistakes as well.