A young hoodlum heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies.
After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum.
Discussion Topic:
Can broken windows make the economy grow?
Growth of Economy depends on GDP growth rate, which ultimately is the market value of all goods and services produced in the economy.
As per Product value approach, GDP is the sum total of all market value of goods and services produced in the economy.
As per Income approach, GDP is the sum total of income earned by various factors of production, say Land, Labor, Capital and Entrepreneur.
GDP = Rent + Wages + Interest + Profit
Glass has got derived demand in the form of windows manufactured. So if a window gets broken, the shopkeeper needs to replace the same. In order to replace it, a glass as a raw material is required, labor charges for processing the glass into window and further labor charges for fixing the window.
Thus, it contributes to GDP in the form of glass, wages for processing it and wages for fixing the window.
GDP = Glass + Wages paid to the labor
It thus contributes to GDP and ultimately the growth of the economy.
A young hoodlum heaves a brick through the window of a baker’s shop. The shopkeeper runs...