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In the “broken window fallacy,” a group of onlookers to a broken shop window determine that broken windows are good for economy. ¬†They are unable to realize that a repaired window is a cost to the shopowner which results in less income for other goods, such as shoes for his children.

The broken window fallacy was written by 19th century economist Frederic Bastiat, who is often cited by Libertarians as a early Austrian (despite being a Frenchman) because he often decried protectionism and government intervention.

His most important contribution to economics was the idea that good economic decisions can only be arrived at by taking into consideration the “full picture.” ¬†That is, the immediate consequences of an action are not sufficient, you must also take into account the subsequent reactions and further actions down the road.

The irony is that those who cite Bastiat today are unable to recognize even the most basic realities of the monetary system, including that Government liabilities are private sector savings.

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