The “broken window” fallacy never dies…
The blessings of destruction…
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Dear Reader,
The “broken window” fallacy is alive in 2026. And the “broken window” fallacy is well in 2026.
Thus Reuters informs us that:
The eyes of the world have been glued to the twists and turns of the ongoing talks to end the conflict between Russia and Ukraine, but the real story for investors is what comes after. If U.S. President Donald Trump is successful in pushing through a truce, a massive reconstruction boom could begin almost immediately…
Ukraine's civil infrastructure and economy have been severely damaged over the past four years… Rebuilding is expected to cost around $524 billion over the next decade, and it will likely be financed mainly by the European Union and the private sector.
Brussels has signalled that, in exchange for its support, it expects European companies to win the bulk of rebuilding contracts. Washington is likely to attach similar conditions, steering any money invested in Ukraine’s reconstruction back toward U.S. contractors.
Just so. It is true that individual investors may profit from Ukraine’s wrecking and subsequent un-wrecking.
Yet we must adopt the overall view. Will Ukraine itself truly prosper from reconstruction?
The Broken Window Fallacy
Centuries ago classical economist Frederic Bastiat laid bare the threadbare structural supports holding the broken window fallacy together.
Imagine the scenario:
A hooligan heaves a rock through a shopkeeper’s window. This shopkeeper must therefore contract the glazer’s services to replace the window.
“Oh, what an economic gift,” chirps the broken window enthusiast.
“The shopkeeper will have to employ the services of the glazer to repair the window,” he continues.
“The glazer will profit from this seeming act of destruction. He will proceed to lavish his wherewithal upon the cobbler, the baker, the candlestick maker. The cobbler, the baker, the candlestick maker will proceed to spend money on the butcher, the carpenter, the garment maker.”
Thus the initial act of apparent destruction sets in train a virtuous cycle that enriches the community.
And so the criminal hooligan who shattered the shopkeeper’s window is not truly a criminal hooligan.
He is instead a blessed agent of economic salvation.
He belongs not rotting in the hoosegow but rollicking in the Chamber of Commerce.
The Invisible Costs
Yet the destructionists neglect to consider the money the original shopkeeper cannot spend on the cobbler, the baker and the candlestick maker.
They neglect to consider the money the original shopkeeper cannot spend on the butcher, the carpenter, the garment maker.
He has spent it on the glazer — and merely to rise up to even. He has gained not a thing. Where is the economic gain?
What you have is a reallocation of resources — not a general expansion of wealth.
Mr. Henry Hazlitt, from his timeless Economics in One Lesson:
The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. 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 glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor.
They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.
Where’s the Gain?
And so we are told $524 billion will go flowing towards the reconstruction of Ukraine across the following decade.
Yet that $524 billion will merely restore what was. It will not take what was and expand upon it.
Where then is Ukraine’s true benefit? Think of what that $524 billion might otherwise have brought into existence.
It is true, the new may improve upon the old in certain instances. It may clear out old inefficiencies.
Yet the larger point stands. And the larger point is that destruction is a false engine of economic prosperity.
Ukraine offers no exception.
Yet let us assume for the moment you subscribe to the ‘destruction is salvation’ theory.
You call in a wrecking crew to raze the very house in which you reside.
Insanity
“Look honey,” you exude to your wife.
“I’m stimulating the economy. Think of all the money this destruction crew will have to spend on new appliances, autos, vacations, etc. That money will in turn fan out in every direction, enriching all kinds of industries. Think of what this one act of destruction will do for GDP!”
You continue:
“And the new house we’ll eventually land in? It’ll have centralized air conditioning and a charging station for electric vehicles. We’ll live so much better than we have been in this antiquated house.”
Above I cited the various enterprises that will benefit from your magnanimous act of self-destruction.
To these we must add two more — the psychiatric profession to whose care your wife will commit you — and the divorce industry whose services she will immediately solicit.
There you will be… wifeless and homeless.
Yet you will be an economic miracle-maker.
And you will enjoy the profoundest thanks of the economic profession.
You will be the living embodiment of destruction’s blessings.
And you will be miserable.
Brian Maher
for Freedom Financial News
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