The Broken Window, Essay Example

Economics is not usually considered to be simple, logical or easy to understand.  Often times in business, the economic decisions that managers are faced with have specific tradeoffs that may involve positive or negative impacts.  Henry Hazlitt wrote his book Economics in One Lesson in 1946 to clearly illustrate many of the complexities in economic decision making.  Through effectively analyzing the complex decisions that surround simple actions in real-world scenarios, individuals can gain a deeper appreciation for economics.

The complexities of an unexpected occurrence are illustrated and examined within Hazlitt’s “The Broken Window.”  Unexpectedly, a young boy throws an object toward the window of the store and shatters the window.  The author emphasizes that this is detrimental to the store owner and causes him to enter into a complex issue where he is faced with a decision to make.  On one hand, the store owner wanted to purchase a new suit, but now must decide whether to purchase the suit or purchase a brand new window for the store.  Furthermore, the author illustrates that the broken window effectively benefits the glass industry because now a glazier is able to provide a service to the store owner and receive a profit.  Without this broken window, the glazier is not able to earn a profit.  Therefore, the young man can be viewed as a public servant because without his illegal action of throwing the object and breaking the glass, the glazier’s company would be stagnant and cease the ability to earn a profit and pay its liabilities.

The first main vocabulary term that is emphasized within this story is called utility or value.  This concept is defined as “a measure of the satisfaction, happiness, or benefit resulting from the use of a resource. [It] implies substitutability [or] the idea that one thing might be taken rather than another if it produces the same value” (Presentation).  First of all, the store owner has an important decision to make in how to effectively spend money based on his personal needs and the needs of his company.  A major factor that can influence this decision is based on the overall utility or value of the decision.  While the company needs the window repaired as quickly as possible to continue to operate for business, the store owner wants to purchase a new suit that will provide him with a large amount of personal utility.  This decision can be emphasized based on which will make the store owner happier or deliver the greatest benefit.  The owner must compare personal benefit and happiness to that of economic or business benefit.

Furthermore, a second vocabulary term illustrated throughout “The Broken Window” is called Opportunity Cost.  This concept is defined as “What you give up to acquire a particular resource. That is, what’s the value of what you can’t buy because you bought something else” (Presentation).  The store owner has a very serious decision to make with regards of how to spend his money.  First of all, the owner’s window is broken and it must be replaced in order for the business to operate effectively and be conducive for the store to gain a profit.  In order to pay for the broken window, the store owner must give up $50 that he had originally intended to purchase a new suit.  This is an arbitrary example because the store owner may have desired to spend the money on anything else.  Opportunity cost clearly shows that in order for the store owner to make his decision, he must analyze the value of the suit that he cannot buy due to purchasing a his new window.

The final vocabulary term that is illustrated throughout this economics story is called Consequences.  This term is defined as “What happens as a result of something we do. [It] may be short or long term. [It may be] visible or invisible” (Presentation).  This concept suggests that every decision that is made has a consequence, whether it is positive or negative.  Sometimes the best decision that can be made is to simply do nothing.  “Occasionally you find economic forces so powerful that nothing can be done” (“Brief Introduction”, n.d.).  In this situation, however, it is not beneficial for the store owner to do nothing.  He must make a decision that is in the best interest of his company and his personal life, while gaining the greatest positive consequences.  In the short-term, the store will be able to effectively function and operate for business if the store owner purchases the new window.  In addition, purchasing a new window and ensuring that there is no delay in business operations will maintain a strong reputation and the customers will value the company for both the short-term and long-term.  Furthermore, customer respect and loyalty are consequential factors that are not economically measureable.

Within the study of economics, there are five big ideas that help summarize the impact of decision-making and behaviors.  This impact can be positive or negative, but there is almost always a specifically defined impact.  One of these main ideas that is clearly illustrated through “The Broken Window” is the first big idea.  This idea states that “Choices involve tradeoffs.  We always give something up to get something else” (Presentation).  The store owner’s complex situation shows that this big idea is clearly in action.  The store owner must choose to purchase a suit or give up his desired suit to purchase a new window.  Clearly, his choices do involve tradeoffs and if he is to purchase the suit or the window, he will not be able to purchase the other.  Therefore, the opportunity cost and consequences are directly related to the economic decision making that the store owner must implement.

In current events, we can clearly see Hazlitt’s ideas are effectively in action.  For instance, the United States Federal Government chose to bail out several companies and banks throughout the country that had been forced with bankruptcy.  The government had a decision to make and it was based on opportunity costs, consequences, and utility.  The positive or negative consequences that resulted from the bail outs were inevitable.  However, the government determined that the best course of action with the greatest utility was to pay billions of dollars to bail out these companies.  Furthermore, we can see that there were specific tradeoffs that existed for each potential option or choice.  The complexities of economic decision-making are vast and these basic concepts must each be taken into consideration to understand theoretical or real-world application.

References

Amos, O. (n.d.). “A brief introduction to get you started.” A Pedestrian’s Guide to the Economy. Retrieved February 22, 2010 from: http://www.amosweb.com/pdg/

Amos, O. (n.d.). “A Random Walk Through Some Economic Statistics.” A Pedestrian’s Guide to the Economy. Retrieved February 22, 2010.

Amos, O. (n.d.). “Playing the Stock Market.” A Pedestrian’s Guide to the Economy. Retrieved February 22, 2010.

Hazlitt, H. (1946) Economics in One Lesson. Retrieved February 22, 2010 from: http://www.hacer.org/pdf/Hazlitt00.pdf