Broken window fallacy and economic illiteracy.

by Desrtopa 9y1st Dec 201013 comments


Some time ago, I had a talk with my father where I explained to him the concept of the broken window fallacy. The idea was completely novel to him, and while it didn't take long for him to grasp the principles, he still needed my help in coming up with examples of ways that it applies to the market in the real world.

My father has an MBA from Columbia University and has held VP positions at multiple marketing firms.

I am not remotely expert on economics; I do not even consider myself an aficionado. But it has frequently been my observation that not just average citizens, but people whose positions have given them every reason to learn and use the information, are critically ignorant of basic economic principles. It feels like watching engineers try to produce functional designs based on Aristotelian physics. You cannot rationally pursue self interest when your map does not correspond to the territory.

I suppose the worst thing for me to hear at this point is that there is some reason with which I am not yet familiar which prevents this from having grand scale detrimental effects on the economy, since it would imply that businesses cannot be made more sane by the increased dissemination of basic economic information. Otherwise, this seems like a fairly important avenue to address, since the basic standards for economic education, in educated businesspeople and the general public, are so low that I doubt the educational system has even begun to climb the slope of diminishing returns on effort invested into it.