Henry Hazlitt’s broken window fallacy story is a classic economic parable illustrating the concept of opportunity cost and the fallacy of ignoring unseen consequences. The story revolves around a young boy who accidentally breaks a shopkeeper’s window, leading to various reactions from bystanders. Some observers argue that the broken window is a blessing in disguise, as it creates work for the glazier and stimulates the local economy. They believe that the money spent on repairing the window circulates and generates income for others, promoting economic growth.
Hazlitt points out the fallacy in this line of thinking, emphasising that the money spent on fixing the window could have been used elsewhere for more productive purposes. By repairing the window, the shopkeeper loses the opportunity to invest in other goods or services, such as expanding the business or purchasing new equipment. This is the concept of opportunity cost: the value of the next best alternative forgone when acting.
The broken window fallacy illustrates that focusing solely on the visible, immediate effects of an action can lead to wrong conclusions. It reminds us to consider the unseen, long-term consequences and opportunity costs when evaluating the true impact of an event or policy on the economy.
As demonstrated by the aforementioned experience, recognising and understanding the other side of a situation is crucial to making well-informed decisions and overcoming obstacles. This broader perspective can lead to discovering hidden opportunities and mitigating risks. By considering multiple viewpoints, individuals and organisations can better anticipate and address potential challenges. This holistic approach can enable more strategic decision-making and help avoid falling into the trap of the “broken window fallacy,” as explained by Hazlitt.
So, the next time you are faced with a consequential and irreversible decision, ask yourself if you have thought about the “second side”. Speak to people who may have perspectives different from your own. Listing out the pros and cons or doing a SWOT analysis can also help uncover aspects which you may have not thought about. The “second side” thinking can also help close doors and help you open new ones.