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Thread: The Broken Window Fallacy

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    Default The Broken Window Fallacy

    Originally posited by Claude Frédéric Bastiat (1801-1850) in his infamous work That Which is Seen, and That Which is Not Seen (1850), the parable of the broken window sets the stage for every imaginable objection to market interventionism, and especially taxation. Check out this short film made by students of the Mises University.

    Last edited by Capitalist Pig; 08-02-2010 at 07:56 PM. Reason: Edited video link for the new version.

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    Interesting that I had no idea there was a Mises university. I'll watch this soon as soon as I get done cleaning my apartment.
    It was in the reign of George III that the aforesaid personages lived and quarrelled; good or bad, handsome or ugly, rich or poor, they are all equal now.

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    Quote Originally Posted by jxrtes View Post
    Interesting that I had no idea there was a Mises university.
    It's brand new, just began this year. They've had home study courses for a while, I believe.

    http://academy.mises.org/

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    I don't understand why the glazier couldn't have bought the suit with the money he got.

    EDIT: nm. It's because he has to spend some of that money purchasing materials and stuff so he wouldn't have enough for a suit. But then wouldn't purchasing those materials stimulate another sector of the economy?

    Damn economics, I don't understand you.
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    Quote Originally Posted by jxrtes View Post
    I don't understand why the glazier couldn't have bought the suit with the money he got.

    EDIT: nm. It's because he has to spend some of that money purchasing materials and stuff so he wouldn't have enough for a suit. But then wouldn't purchasing those materials stimulate another sector of the economy?

    Damn economics, I don't understand you.
    The broken window fallacy relies on the idea that net losses are actually gains. The net result of the window being destroyed is that there is now one less suit and an equal number of windows. The net result of the window not having been destroyed would have been an equal number of windows plus a suit.

    Society doesn't gain anything by having its material goods arbitrarily destroyed.
    Last edited by discojoe; 08-01-2010 at 02:42 AM.

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    Quote Originally Posted by jxrtes View Post
    I don't understand why the glazier couldn't have bought the suit with the money he got.

    EDIT: nm. It's because he has to spend some of that money purchasing materials and stuff so he wouldn't have enough for a suit. But then wouldn't purchasing those materials stimulate another sector of the economy?

    Damn economics, I don't understand you.
    It's simple x + 1 > x but x - 1 + 1 ≯ x. The broken widow falacy claims that x - 1 + 1 > x.

    Or here it's the claim: ALLIHAVE - WINDOW + WINDOW better then ALLIHAVE + SUIT.

    In reality any destruction leads people to spend their resources replenishing what they lost instead of activities of their own free will. You may stimulate other sectors of the economy but you lose. You keep digging ditches only to refill them. As the liberty to spend your money is taken away from you.

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    Quote Originally Posted by discojoe View Post
    The broken window fallacy relies on the idea that net loses are actually gains. The net result of the window being destroyed is that there is now one less suit and an equal number of windows. The net result of the window not having been destroyed would have been an equal number of windows plus a suit.

    Society doesn't gain anything by having its material goods arbitrarily destroyed.
    Quote Originally Posted by snegledmaca View Post
    It's simple x + 1 > x but x - 1 + 1 ≯ x. The broken widow falacy claims that x - 1 + 1 > x.

    Or here it's the claim: ALLIHAVE - WINDOW + WINDOW better then ALLIHAVE + SUIT.
    I still don't get it. Let's say it costs the glazier 50% of his earning to purchase the materials to repair the windows, which goes to the chemical shop. The glazier has 50% leftover to buy a jacket (half a suit) and the chemical shop owner has 50% to buy a pair of pants (half a suit). The net result is that there is an equal amount of windows and one complete suit from the suit maker.

    In reality any destruction leads people to spend their resources replenishing what they lost instead of activities of their own free will. You may stimulate other sectors of the economy but you lose. You keep digging ditches only to refill them. As the liberty to spend your money is taken away from you.
    I understand this.
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    Quote Originally Posted by jxrtes View Post
    I still don't get it. Let's say it costs the glazier 50% of his earning to purchase the materials to repair the windows, which goes to the chemical shop. The glazier has 50% leftover to buy a jacket (half a suit) and the chemical shop owner has 50% to buy a pair of pants (half a suit). The net result is that there is an equal amount of windows and one complete suit from the suit maker.
    In this situation, if the glazier did not have a broken window, he could buy two jackets. SOMEONE ELSE would still buy the window from the chemical shop, and the chemical shop owner can buy pants. The broken window loses the community one jacket.

    Even if NOONE ELSE buys the window, the community now has two windows and two jackets, which is better than a window, a jacket, and pants.
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    Quote Originally Posted by Crispy View Post
    In this situation, if the glazier did not have a broken window, he could buy two jackets. SOMEONE ELSE would still buy the window from the chemical shop, and the chemical shop owner can buy pants. The broken window loses the community one jacket.

    Even if NOONE ELSE buys the window, the community now has two windows and two jackets, which is better than a window, a jacket, and pants.
    The baker has the broken window. The glazier is the guy he has to buy the new window from.
    It was in the reign of George III that the aforesaid personages lived and quarrelled; good or bad, handsome or ugly, rich or poor, they are all equal now.

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    Wow I'm dumb. I was thinking: Glazier... Glazed... Donuts... Breadmaker? and rolled with it. Let me rethink here...

    EDIT:
    Situation Broken Window
    Baker spends $50 on window
    Glazier spends $25 on materials
    Glazier spends $25 on jacket
    Chemical shop owner spends $25 on pants.
    Society has: Fixed window($50), jacket($25), pants($25)
    Net worth: $100

    Situation Unbroken Window
    Baker spends $50 on suit
    Glazier does not spend $25 on materials.
    Glazier spends the saved $25 on a jacket.
    Chemical shop owner keeps his materials priced at $25 to sell later/ he sells them to someone else.
    Society has: Fixed window($50), suit ($50), jacket ($25), and Chemical Shop Materials ($25)
    Net Worth: $150

    The breaking of the window is a loss of $50 for society no matter how you look at it.
    On the other hand it does do the chemical shop owners job for him, but is surely is not worth the loss of the $50 suit.
    Last edited by Crispy; 08-01-2010 at 03:05 AM.
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    Or if you want to be retarded about it:

    Hooligan breaks bakery window
    Event is published in the local newspaper
    People who hadn't noticed the bakery before are now aware of it
    Business increases with the newspaper article publicity
    Bakery takes advantage of this publicity and changes their name and image to something like "Broken Window Bakery," thus becoming a hip meeting place for stoners.
    Demographics grow, generates more money than before from new customers
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    Quote Originally Posted by Galen View Post
    Or if you want to be retarded about it:

    Hooligan breaks bakery window
    Event is published in the local newspaper
    People who hadn't noticed the bakery before are now aware of it
    Business increases with the newspaper article publicity
    Bakery takes advantage of this publicity and changes their name and image to something like "Broken Window Bakery," thus becoming a hip meeting place for stoners.
    Demographics grow, generates more money than before from new customers
    There is still no net wealth creation. In this situation, there is a wealth transfer from the customers that are new to the bakery. To be simplistic, we will assume that those customers originally went to another bakery, but decided to go to this one instead because of the publicity for one week only; more wealth is transfered to the bakery that had the broken window instead of other bakeries. No net wealth was created in the economy.
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    Quote Originally Posted by Jimbean View Post
    There is still no net wealth creation. In this situation, there is a wealth transfer from the customers that are new to the bakery. To be simplistic, we will assume that those customers originally went to another bakery, but decided to go to this one instead because of the publicity for one week only; more wealth is transfered to the bakery that had the broken window instead of other bakeries. No net wealth was created in the economy.
    Makes sense. I honestly wasn't expecting a serious response from that but ok
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    Quote Originally Posted by snegledmaca View Post
    In reality any destruction leads people to spend their resources replenishing what they lost instead of activities of their own free will. You may stimulate other sectors of the economy but you lose. You keep digging ditches only to refill them. As the liberty to spend your money is taken away from you.
    Absolutely correct. The thing I am hoping that more people will realize, however, is that intervention in the free market has the same effect as the troublesome vandal. The misdirection and redistribution of wealth does not confer any benefit to society because of the actions it prevents. It goes to the encouragement of things which the individuals extorted may or may not have just as well encouraged on their own with their patronship.

    It does not benefit me to have my income extorted to line the pocket of a bureaucrat I may or may not have even voted for; to do with as he sees fit, such as buy a new car or install an in-ground pool; things which obviously affect my wellbeing not at all. Just as well if it goes to support some government program that I may not even use.

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    The problem of course is not government intervention, without government there would be no market and no free marketers (they would be lunch food mainly). The problem is of course the National Accounts methodology.

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    Actually I now think no wealth is destroyed in the process just redistributed. Well not destroyed at this moment in time at least.

    The person had 100 units of money and they spent it repairing a window. They could've spent it on a suit, of the same price, but they spent it on a window. And that propagated and that is the argument for improvement of society through this process,
    that propagation, the flow of money is good for the economy. Spending that money created jobs, it gave people work and employment.
    However in reality this does not aid the economy as all it does is transfer wealth from yourself to other people.

    Well actually it can. If these were your savings, money you were going to spend at a later point in time, and you spent it now then you introduced money into the economy making it grow. But that raises the whole other unrelated question of what happens when later comes as now that later money cannot be spent later and growth of the economy now implied as subtraction of the economy latter. Given the same amount of resources, money.

    But ignoring that and considering this is money that is coming out of a paycheck then you did not aid the economy as all you did was transfer wealth from yourself to other people. The same thing which would've happened if you would've bought the suit instead of the window. But the difference is that now
    you work for your money but you do not enjoy the fruits of your own labor.
    And that's the point. Why this is a bad thing.

    Quote Originally Posted by Empire View Post
    The problem of course is not government intervention, without government there would be no market and no free marketers
    What makes you say that?

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    The broken window fallacy results in the gradual net destruction of material goods. That is a loss of wealth.

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    Quote Originally Posted by Ashton View Post
    Who are these "free marketers" and why are you designating this apparently arbitrary classification to begin with? The lives of every man, woman, and child in a society are comprised into the integration of activities that result in what is otherwise known as 'the market', an emergent feature which both influences and is itself influenced by the actions of every individual in every conceivable facet of their existence.



    A problem wholly attendant to the existence of governments, and inherent to the very nature of government itself. You don't solve the problem without getting rid of government. There is no plausible exception to this and no system however perfectly devised by man is ever going to make it so.
    No.

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    lol

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    There is also the problem that if this happens alot, the baker will eventually raise his prices making everyone's money worth less.
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    Quote Originally Posted by Ashton View Post
    The only way the baker gets away with doing that (i.e. without going out of business) is assuming he has monopoly power to set prices.
    Three things can happen:
    1) He doesn't raise prices and eventually goes out of business as costs slowly rise.
    2) He does raise prices, but everyone starts buying from other bakers (who in turn raise prices as demand for their goods rise)
    3) He raises prices but people don't switch their business elsewhere.

    Unless there is a fourth realistic scenario, all three of these are bad for everyone in the town.
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    my very unknowledgeable 2 cents:
    why not have the town make the hooligan who broke the window pay for the replacement. Then HE'd be the one having to work for the money to pay for the window, thus allowing the baker to buy his suit, and the glassier to make another window.

    oh, and of course now the judge/jail system can get funding as a means of catching, judging, and then forcing the hooligan to pay recompense...
    (note: NOT paying more money to house the hooligan as he "does his time", but making him actually work to repayment)

    (yea yeah yeah, i know...I already said it was my VERY unknowledgeable 2 cents worth...now someone is 2 minutes poorer of their time :wink: )
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    The hooligan never turned himself in and we don't know where to start looking.
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    Quote Originally Posted by Crispy View Post
    The hooligan never turned himself in and we don't know where to start looking.
    yeah, heh, in my scenario, everyone actually loses a suit...
    to pay for the finding, catching, hearing, judging, and forcing of the hooligan
    (who may just choose to harm himself to get out of paying for all the above... thus costing yet another suit...but i guess that could come from the hooligan's closet )

    okok, i'll shut up now...
    let the seriousness continue
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    Just making a note that they've re-edited the originally video, and I've changed the OP to reflect this. Nothing much has changed dialogue-wise, they just took out some of the hilarious amateur voice acting.

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    The broken window fallacy has a fallacy. It's a fallacy to assume that the goal, the increase in a resource pool is the only criteria for human effort and use of money and resources.

    People use money for all sort of reasons, survival, pleasure, prevention of misery, beauty and various other actions which results in a decrease in some resource pool.

    Sure getting people to dig a ditch and fill it is a pointless act, unless you're a kung-fu training your disciple. Sure there are a lot of things that might seem pointless but in the end, it happens for some reason.

    The circulation of currency is necessary for the survival of a economy, just as the circulation of energy within a organism is neccessary for its survival. Just as the circulation of energy in the universe is neccessary for it's existence. A decrease in the resource pool is basically the nature of the universe. Thermodynamic tells us so, at least for the foreseeable time frame of human and and universal history. And what is money, but some abstract human exchangeable form of energy, which we barter and trade for necessities and luxuries.

    The truth is that we do not gain unless we acquire new ways to tap into new and unutilized resources and any such tapping of those resources results eventually in the reduction of some resource pool and the creation of entropy. It's impossible to avoid this fact, but as the human timeframe is short and we are not beholden to merely the futility involved in creating a bigger resource pool, we can do things in order to create things like beauty, pleasure, monuments, creativity, infrastructure which will be used for future development.

    Why destruction is often neccessary. When overbuilding occurs because of speculation, often times, there is a need for demolitions, as in most of the industrial wastelands of the northeast US. You don't hire people to fix the empty ghost towns, you don't hire them to rebuild them. You hire them to take out the trash and clear the empty strips of unoccupied housing. You also have a lot of destruction of overbuilt housing due to the housing boom.

    This particular example is actually not even one that merits mention, because fundamentally it's not about the management of resource pools, but one about harm.

    The child breaks a window for no reason(nominally), one that needs to be replaced and one which will consume resources.

    But if a fireman breaks a window to rescue a child from a building, even through such a act can only cause harm in terms of money and resources, such a act has a reason.

    Given that thermodynamically, the resource pool of the universe is ever diminishing, I say live it up and waste some for pleasure and beauty and comfort and other "non-profitable" actions.

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    Quote Originally Posted by discojoe View Post
    The broken window fallacy results in the gradual net destruction of material goods. That is a loss of wealth.
    Agreed, but what's at issue is taxation, which doesn't result in the destruction of wealth, just its redistribution. Whether or not taxation is wrong by some other metric (it's possible you believe the government is worse than its citizens when it comes to investing), the broken window fallacy doesn't have anything to do with it. At least not the way the video makes it out to be.
    It was in the reign of George III that the aforesaid personages lived and quarrelled; good or bad, handsome or ugly, rich or poor, they are all equal now.

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    Quote Originally Posted by jxrtes View Post
    Agreed, but what's at issue is taxation, which doesn't result in the destruction of wealth, just its redistribution. Whether or not taxation is wrong by some other metric (it's possible you believe the government is worse than its citizens when it comes to investing), the broken window fallacy doesn't have anything to do with it. At least not the way the video makes it out to be.
    So you're saying that taxation doesn't hurt job growth because the government is just as efficient as the free market?

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    Quote Originally Posted by Ashton View Post
    lol@all of this awfully convoluted causality. It sounds just like the crap that John Maynard Keynes often spewed in support of his economic ideas. Which is sort of ironic, because you're both the same type.
    I don't even bother talking to him.

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    Quote Originally Posted by discojoe View Post
    I don't even bother talking to him.
    Who?

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    I think the window-breaker was the son of the guy owning the window... leastways, that's how Wikipedia tells it.

    Kid breaks window: -1 window
    Shopkeeper buys window: +1 window, -$50 (to pick a number)
    Glazier sells window: -1 window, +$50
    Glazier makes window: +1 window, -1 materials, -2 hours
    Glazier buys materials: +1 materials, -$25

    You get the drift. At every stage, money is neither created nor destroyed; the only change is that someone is spending time making up for the kid's mistake. So the kid wastes four hours or so of various people's time, and the shopkeeper recompenses all of the losses (taking them on himself, not making them go away). What did the kid gain in exchange for those four hours? Presumably the chance of breaking a window was a risk factor in something else that the kid was doing, such as playing baseball. If on average the kid breaks one window every 16 hours of play, then those 16 hours' worth of fun cost society as a whole 20 hours of work (plus the overhead of moving money around). Whether that price is worth it is between the shopkeeper and his son, since those extra four hours are effectively coming out of his wallet.

    The beneficiary here is not the glazier or baker or whatever, but the kid who broke the window.

    The benefits of money moving around come from economics of scale - moving money around involves overhead, but the more other money is moving around, the less the overhead is on each transaction. The result of this is that the percentage of active commerce being lost to overhead goes down, which makes some previously unprofitable transactions become profitable. The need for occasional otherwise-useless spending to convince people to overcome hurdles consisting of large numbers of barely-unprofitable transactions is one of the weaknesses of the free market economy (though I'm not sure that any economy has overcome this weakness).



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    Quote Originally Posted by Capitalist Pig View Post
    Who?
    hkkmr

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    the flying pig Capitalist Pig's Avatar
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    Quote Originally Posted by discojoe View Post
    hkkmr
    Who?

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    Quote Originally Posted by discojoe View Post
    So you're saying that taxation doesn't hurt job growth because the government is just as efficient as the free market?
    I never said anything to that effect.
    It was in the reign of George III that the aforesaid personages lived and quarrelled; good or bad, handsome or ugly, rich or poor, they are all equal now.

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    Quote Originally Posted by hkkmr View Post
    ...

    I'm a bit confused by your response. Are you saying the broken window fallacy is wrong? Because from what you've said you seem to be talking about a separate thing from it, you seem to be discussing what happens to the resources in use.


    The broken window fallacy basically claims that you are most able to work to your own benefit if you manage your own resources as oppose to if those same resources were managed by somebody other then yourself. In this example a child or in general a government bureaucrat.

    Quote Originally Posted by jxrtes View Post
    Agreed, but what's at issue is taxation, which doesn't result in the destruction of wealth, just its redistribution. Whether or not taxation is wrong by some other metric the broken window fallacy doesn't have anything to do with it. At least not the way the video makes it out to be.

    Well actually in a way it does. You have to look at the propagation of spending money. The broken window did not result in no window it resulted in no suit. That “hole”, loss, propagated and ended up with the tailor. Redistribution of wealth destroys wealth in the manner that it leaves holes where wealth once was. Like when you dig a ditch. Sure, no earth was actually destroyed, just redistributed but now you have a mound and a hole. For the area of that hole wealth might as well have been destroyed. It's a relative effect.

    The case for actual destruction of wealth through taxation is not a right now effect but a relative return over time effect. Think of a meadow. Lots of plants on it. They represent businesses. You redistribute some dirt around, dig holes, make mounds. At first the mounds are barren but soon new plants spring up there. But the question is now what kinds of plants. Are they better then the ones that existed on the original meadow? Because the holes are now empty, let's assume it's bedrock at the bottom of these holes. As in an economy if you remove capital from a business, region it dies and nothing can live there. So if these new plants for example are toxic to eat that's bad. Society does not benefit from toxic plants. Or they are much more feeble then the original ones and require much more maintenance to keep them alive while their fruits are paltry. Again bad, less of a return. That is how redistribution of wealth can destroy wealth. Through fertilizing unethical, inefficient businesses over normal ones. Where I'm not saying this will necessarily happen, I'm just giving an example of how it might happen. But the argument free market proponents give is that nobody can determine objectively what businesses should or should not be fertilized. Artificial fertilization will destroy a healthy meadow through a series of misjudgments brought about by good intentions, ignorance and incompetence.

    Quote Originally Posted by Brilliand View Post
    The benefits of money moving around come from economics of scale - moving money around involves overhead, but the more other money is moving around, the less the overhead is on each transaction. The result of this is that the percentage of active commerce being lost to overhead goes down, which makes some previously unprofitable transactions become profitable.
    What is overhead? Is that a money drain on each transaction, that is, the cost of a transaction? If so just change your payment ways, use cash, you'll get no charge for a transaction, no overhead.

    The need for occasional otherwise-useless spending to convince people to overcome hurdles consisting of large numbers of barely-unprofitable transactions is one of the weaknesses of the free market economy (though I'm not sure that any economy has overcome this weakness).
    This is what one would call you lose money on each transaction but you make it up on volume. If I am understanding you correctly. The business model of the dot com bubble. It's basically an oxymoron as it does not matter if you have 10 or a 10 million unprofitable transactions.

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    Glorious Member mu4's Avatar
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    Quote Originally Posted by Ashton View Post
    lol@all of this awfully convoluted causality. It sounds just like the crap that John Maynard Keynes often spewed in support of his economic ideas. Which is sort of ironic, because you're both the same type.
    Sounds like a smart man then.

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    Glorious Member mu4's Avatar
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    Quote Originally Posted by snegledmaca View Post
    I'm a bit confused by your response. Are you saying the broken window fallacy is wrong? Because from what you've said you seem to be talking about a separate thing from it, you seem to be discussing what happens to the resources in use.
    The broken window fallacy is a example of the use of a bad analogy and various other examples of poor reasoning. It doesn't apply to the situation that actually exists. It's a argument based on a interpretation of the events that only happen some of the time if not a small fraction of the time.

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    Quote Originally Posted by hkkmr View Post
    The broken window fallacy is a example of the use of a bad analogy and various other examples of poor reasoning. It doesn't apply to the situation that actually exists. It's a argument based on a interpretation of the events that only happen some of the time if not a small fraction of the time.
    That's an empty proclamation. Observe:
    The bible is a example of the use of a bad analogy and various other examples of poor reasoning. It doesn't apply to the situation that actually exists. It's a argument based on a interpretation of the events that only happen some of the time if not a small fraction of the time.
    You can fill in the blank with other things of your own free will.

    How about you prove with reason what you say to be true instead of merely proclaiming it to be true.

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    Quote Originally Posted by Ashton View Post
    There needs to be a name for that kind of fallacy, just because I encounter it so often and its so annoying having to explain to people why they're wrong when they argue things like this.
    In essence there is nothing wrong with it, that is basically just a conclusion. However on it's own, isolated, it becomes a baseless proclamation. I would have no issue with it if it were after a reasonable argument, a context from which the conclusion follows.

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