broken window fallacy

My innocent, childlike faith in the wisdom of the Internet has been ruthlessly shattered. Drag Me To Hell, which received widespread raves and a coveted 93% on Rotten Tomatoes, could not have been more disappointing. When unoccupied by grade school barf humor, director Sam Raimi spends most of his time pushing the rising-strings-followed-by-loud-noise trope to new frequencies. But while I came ready for my bowl of cinematic oatmeal, I was completely unprepared for the new lows of popular economics.

The plot of Drag kicks off when our attractive protagonist, Christine, a loan officer at the local bank, denies an elderly gypsy woman a third extension on her mortgage. Cursed for eternity, Christine spends a few days second guessing herself until, realizing the illiberalism of her ways, she finally admits that granting another extension would have been the right thing to do. Birds chirp and sun shines, and the audience moves blithely on to the predictable conclusion—something about demons.

There’s nothing wrong with tropes, even housing crunch tropes, but this particular trope illustrates much that’s broken in how we think about charity. When we see someone in need of help, and someone else who can help them, we assume that only selfish greed could possibly come between the two. As Henry Hazlitt described more than 70 years ago, we are totally blind to unseen costs.

The money that our heroine denies to mystics with bad credit does not come from some bottomless pot of wealth. It comes from the bank’s vaults, which are—as we’ve recently learned—very much finite. An extension granted to one debtor means an extension denied to another. A loan given to an unworthy borrower is a loan taken away from someone worthier. How many people, nodding along to what Christine “should have done,” give a moment’s thought to whomever gets that loan instead off-camera? Maybe the loan goes to a family man investing in his kids’ education, or to a small business owner looking to hire some new hands. Why does our soul-damning antagonist deserve credit more than anyone else?

This mistake is so common, and arises so many forms, that it has earned its own name: the broken window fallacy. That name comes from a story:

One day, as a baker is bringing out his morning bread, a young boy runs by and throws a stone through his window. The baker yells after the boy, and a small crowd gathers to inspect the damage. Most of the passers-by remark on the virtue of a good switching for such boys, but one man, who fancies himself terribly clever, looks at the situation rather differently. “Just think,” he says, “of what will happen next. Our baker, in need of a window, will soon employ the efforts of our glazier down the street. After receiving his price, the glazier will turn around and buy a new pair of boots from our cobbler. And just so, a wave of new production will spread through town. Why, we should thank that little boy and his heroic rock!” Newly enlightened, another gentleman picks up a stone and generously shatters some more windows.

The conclusion is absurd. By that logic they should raze the whole town to “stimulate production.” But where did the clever man go wrong, and what does that have to do with Drag? His mistake is that he considers only on what happens, and ignores what would have happened instead. If the baker hadn’t needed to replace his window, he would have bought a new pair of boots for himself. The same wave of production would be created, but this time the town would be exactly one window richer. In Drag, those funds can build new homes and new businesses, instead of sending people to Hell. Good trade.