Are ATM machines bad because they reduce employment for bank tellers? New efficiencies may create a tough patch for certain workers, but they free up capital to create even more value somewhere else. What about a broken window—is it a kind of economic stimulus since it will need to be replaced with a new one? The window-maker gets a little more business, but the window-owner has lost the full value of a window, which is a real economic loss. Understanding destruction is key to good economics.

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The Broken Window Fallacy

Does destruction create jobs? After natural disasters, terrorist attacks, and wars, some people argue that these disasters are good for the economy, because they create jobs and prosperity. When a shopkeeper’s window is broken, he will spend money on a new window, which gives income and jobs for glaziers. This activity is “seen,” but the “unseen” is just as important: the money spent on a new window could have been spent on other things. Wealth has not increased, but only reallocated from some people to others, and society is worse off by one window.

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Economics on One Foot

How quickly could you sum up the principles of economics? While standing on one foot, Prof. Art Carden discusses six different economic principles in just over two minutes.

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