The broken window fallacy: America doesn’t know what it pays for

If a kid breaks a shopkeeper’s window and a glazier fixes it, is the economy better off? It has created work for the glazier, so isn’t that beneficial? The French liberal economist Frédéric Bastiat disagrees. As his essay “That Which Is Seen, and That Which Is Not Seen” shows, there are visible and invisible costs to every decision. It is visible that the glazier walks away with six francs. But if the window had not been shattered in the first place, the shopkeeper would have owned both a perfectly fine window and the six francs. What else might he have gotten with those lost six francs? That opportunity cost will always be unseen.

Just as the glazier benefited from the broken window, it is easy to see the gains from government spending. Multiple rounds of student loan relief from the previous Biden administration wiped $188.8 billion worth of debts from many college graduates across the nation, changing the lives of 5.3 million borrowers. Many see this as a good thing. In a similar way. the Trump administration’s tariffs aim to strengthen domestic industries, such as steel and semiconductors. Ostensibly, these policies seem pretty good for American citizens.

However, Bastiat’s broken window fable reminds us that society pays hidden costs for those benefits. Bastiat might ask, at what unseen expense does the government help debt takers and factory workers? Perhaps these resources could be put to an alternative use such as reducing the tax burden on citizens or addressing national debt. For tariffs, opportunity costs may vary: consumer price hikes, strained international relationships, and retaliatory tariffs.

Unfortunately, lawmakers resist exposing their policies’ unseen costs, since this would show that their campaign promises are usually zero-sum at best. Without accounting for the total economic costs of a transaction, both seen and unseen, it is impossible to make responsible and informed policy decisions.

Bastiat’s broken window fallacy shows that destruction is not profit, and that decisionmakers must consider opportunity costs. Market mechanisms are the best way to account for this. In the long run, trade policy has no effect on the number of jobs. But one advantage of free trade is that it forces American firms to innovate and compete, which is beneficial for American consumers and businesses alike. Policymakers must resist the urge to mistake destruction for economic gain. Even if short-term political wins feel like progress, society must also understand the hidden costs of the government’s reckless decisions.

To refine Bastiat’s insight, destruction doesn’t always have to be wasteful. Joseph Schumpeter coined the term “creative destruction,” where innovation displaces and changes economic structures. This is the only destruction that should be acceptable in our economy, as it incentivizes businesses to either innovate or specialize. Tariffs hinder creative destruction by subsidizing inefficient business practices and propping up favored industries. Policies should enable innovation, not the illusion of progress. The first step toward that goal is to recognize the hidden costs people unknowingly pay, even for popular policies like forgiving student loans or protectionism for manufacturers.