War And Economy - From The Broken Window

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War and Economy - From the broken window ================================ One of the many myths that people in the western society have is that Wars are good for the economy. There are a great number of people who support this argument. The World War II came after the Great Depression. The building of Hitler’s army led to the revival of German economy, as we discussed in our class. The supporting argument goes as follows: Suppose the economy is stagnant (as a stalled car) and needs a push. The unemployment rates are high. People do not purchase more or produce more. Now, if the country decides to prepare for a war, the government needs to equip its army with new uniforms, boots, helmets, artillery, trucks etc. and the respective industries flourish. This creates more jobs in these industries. People start to earn money and spend this money to improve their standard of living by buying more. This gives a push to the retail sector and other related industries also flourish leading to a chain reaction. More industries, higher incomes and higher spending. Overall the economy flourishes. However, there is a flaw in this logic, which the economists call The Broken Window Fallacy. The Broken Window Fallacy is brilliantly illustrated in Henry Hazlitt's Economics in one lesson. The example taken is of a vandal throwing a brick at a shopkeeper's window. Now, the shopkeeper has to buy glass from a glass shop by spending some money, say 250/-. So, the glass shop is making business. If windows were never broken what would happen to the glass business? Now the glazier has 250/- more to spend with other merchants and the chain continues. The obvious conclusion from this story is that the vandal who threw the brick was not a public menace but a public benefactor. Our logic is correct in saying that the glass merchant benefits from the broken glass. However, we have not
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