Marvel Economics #1: Who Broke Your Window?
May 7, 2018,
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Let’s say some teenagers throw a rock towards the bakery and broke the window. They ran away before the owner catch them up. Soon people gathered in front of the bakery whispering, and taking the responsibility to the teens. Then the owner arrives and get disappointed thinking of spending money on replacing the window. People began to cuss the teens and feel sorry for the owner. But just then, a man said; “Don’t just blame the teens but look at some positive aspects of this situation. Now the owner will order a new window to the repairman who will give him the profit, and the repairman will use the money that he have earned in raising another man’s profit. As a matter of fact, this linkage effect of income and expense will increase in profits and jobs; and increase in profits and jobs will lead to economic activation!” People begin to nod their heads and even the owner seems quite accepting the situation. So is it good to make more and more broken windows to activate economy?
The answer is NO. Most of the electorate falls out to this ‘Broken Window Error’. But actually is not the case. If the owner didn’t spend money on repairing broken window, he would have bought himself a new suit; and the tailor would have use his profit in raising another man’s profit. Thus, the broken window did not make more incomes and jobs but changed the direction of expense. The broken window didn’t make new jobs. Instead, it made different jobs. Normally people only see the situation that actually happened, they can’t see the other situation that would have occur if the actual situation didn’t occur in the first place.
It also happens same with the government policy. Government policy cannot be justified by how many jobs it creates but how influential and effective it is to the economy. For a while, 90% of U.S population worked in the agricultural industry. Now only 3% of U.S population works in the agricultural industry. With all due respect, did the quality of life decrease? People who would have work as a farmer rather became a professor or a scientist. As mentioned, people only see the situation that actually happened.
The ‘Broken Window Theory’ was first introduced by criminologist James Q. Wilson and George L. Kelling in 1982. The ‘Broken Window Theory’ is widely use not only in economics, but also other different academic fields like communication studies, sociology, and psychology nowadays. Scholars examine how people behave to a certain situation and analyze their reactions. Moreover, they apply this to the normal society and even predict what phenomena will happen in the future. Thus, knowing some funny facts and common sense about economics will lead you to a cultivated person with board vision in many different fields.
Written by Alex An
Reference: Principles of Economics (Mankiw, N. Gregory)