>> A lot of people think that
when something is destroyed,

that's bad for the owner, but
it's good for the economy.

The idea is that people now
have to spend money to repair

and rebuild and that that
spending creates jobs.

Economists call this the
broken window fallacy.

Suppose some neighborhood
kids are playing baseball near

your house.

Suddenly, you hear a crash

and see a baseball
rolling across your floor.

Now you've got to spend a
couple hundred dollars fixing

that window.

That's bad for you,
but it creates jobs

for the person installing
the window

and at the window factory.

But economists point out that
the money you are spending

on repairing the window wasn't
just going to gather dust

in your bank account;
you would have spent it

on something else,
like a new computer.

The broken window creates
jobs for repair people,

but it reduces jobs making
and selling computers.

And that is true for
most major disasters.

We spend millions or
even billions rebuilding,

and that does create
many construction jobs,

but what is less visible are the
jobs in retail, manufacturing,

and entertainment
that are not created

because people are spending
less on consumer goods.

This is one way that
trade-offs show up in real life.

Consumers have enough money
to replace their window

or buy a new set of
clothes, but not both.

But that simply reflects the
fact that productive resources,

like workers and tools and
raw materials, are finite.

We can use them to produce
more windows, but that comes

at the cost of producing
fewer sets of clothes.