Acton Institute Powerblog

Riots and the broken window fallacy

The cost of the nine days of rioting following George Floyd’s death has already exceeded $100 million. Yet some economists believe that damage actually benefits our country.

In the epicenter of the riots, Minneapolis Mayor Jacob Frey has appealed to the federal and state governments to foot the bill for the destruction, which stands at a preliminary estimate of $55 million. Much of that property damage followed Frey’s stand down order for police to largely turn a blind eye to vandalism—even abandoning their own precinct headquarters to arsonists—because, in his words, “brick and mortar is not as important as life.”

The wreckage piled up as nationwide protests left businesses in smoldering heaps:

  • The damage looters did to business exteriors in Atlanta’s Buckhead neighborhood comes to an estimated $10-15 million. This does not include the stores’ inventory loss or the cost of rioting in the city’s other communities, which experienced far greater violence;
  • In Santa Monica, California, protesters caused $11.5 million in damages to store exteriors, not including theft;
  • Chicago Mayor Lori Lightfoot has already committed $11 million in city funds to rebuild businesses decimated by protesters;
  • Looters in California’s state capital of Sacramento inflicted $10 million in losses on 130 businesses;
  • The arson of a single building cost Lincoln, Nebraska, $10 million, to say nothing of the rest of the city;
  • Florida’s Hillsborough County (Tampa) has dedicated $3 million to assist small businesses alone;
  • New York’s capital, Albany, lost $1 million in destruction following a one-day protest; and
  • Rioters caused an estimated $448,000 in damages to Grand Rapids, Michigan, the hometown of the Acton Institute.

These incomplete estimates must be multiplied by the reported 147 U.S. cities that experienced rioting—to say nothing of international cities like London, Paris, and Hamburg.

Some economists insist the senseless ravaging of city centers will prove to be an economic boon. Fox Business reports:

While there’s “no situation where this is a good thing,” the U.S. economy may actually see a boost due to the rebuilding that will occur following the riots, [Neil Dutta, head of economics at the New York-based Renaissance Macro Research] said.

“This is sort of your classic hurricane-style shock where you have a delay in activity and then things pick up and then there’s a rebuilding process that actually boosts GDP,” Dutta said. “The destruction in wealth doesn’t necessarily impact GDP, but the rebuilding does.”

Without knowing it, Dutta repeated perhaps the longest-lived error in the history of economics: the broken window fallacy. Frédéric Bastiat defined the falsehood no later than 1850 in That Which is Seen, and That Which is Not Seen. Nearly a century later, in Economics in One Lesson, Henry Hazlitt called the broken-window fallacy “the most persistent in the history of economics.”

Even in his day, Hazlitt updated Bastiat’s shattered panes from an accident to an act of vandalism.

“A young hoodlum, say, heaves a brick through the window of a baker’s shop,” Hazlitt wrote. Looking for a silver lining, onlookers conclude that at least the destruction keeps glass replacement companies in business. They, in turn, will spend that money elsewhere, and “the smashed window will go on providing money and employment in ever-widening circles.”

“The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor,” he wrote.

This blinkered optimism comes from seeing only in part. It ignores something economists call opportunity cost. Hazlitt explained:

But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

The reality is simple enough to grasp: Acts of human or natural destruction deplete our national store of wealth, which must be replenished at the cost of genuinely productive activity. Instead of building new businesses, we repair old ones. This difference should be self-evident. Yet the fallacy trudges on, zombie-like, after riots, wars, natural disasters, pandemics, and every other tragedy.

Even the jobs produced by destruction do not add to economic growth. The great intellectual and National Review contributor Frank Chodorov put it this way: “[E]ffort which does not add to the abundance of the market place is useless effort. Society thrives on trade simply because trade makes specialization possible, specialization increases output, and increased output reduces the cost in toil for the satisfactions men live by.” Working to replace the same windows year after year does nothing to enrich society or improve its collective knowledge.

These acts of plunder create yet another deficit, according to the Bible: Vandalism destroys wisdom. Scripture praises all those the Lord has filled “with the spirit of God, in wisdom, in understanding, and in knowledge, and in all manner of workmanship,” whether “of the engraver, and of the cunning workman, and of the embroiderer, in blue, and in purple, in scarlet, and in fine linen, and of the weaver, even of them that do any work” (Exodus 35:31, 35). The same wisdom that built the sanctuary adorned our crumbled buildings, homes, and businesses. Rebuilding these projects—if it is even possible—cannot replace the acts of personal creativity and God-given talent the original artisans poured into them. Nor does it account for the new creations that the new artisans could have constructed if they did not have to fill the void of vandalism and malice.

The wisdom to discern beneficial economic activity from destruction has never been more necessary than as we rebuild.

(Photo credit: Associated Press.)

Rev. Ben Johnson

Rev. Ben Johnson is Executive Editor of the Acton Institute's flagship journal Religion & Liberty and edits its transatlantic website.