Broken Windows ...

When I was 11, I was playing croquet at a friends house and I put a ball right through their basement window. I was goofing around and decided to pretend to hit the ball on my backswing. "Haha, look, he can't even hit a croquet ball!" I neglected to look behind me and the ball ended up in the basement. I remember sitting in my room later that night, listening to my dad talk to my friends dad, apparently discussing how much this was going to cost.

There is no doubt that breaking that window removed wealth from the world, but not all the world. The glazier that my friend's dad later called gained some wealth, exactly the same wealth that my dad lost. However, this is not the only cost. There was an "opportunity cost" that my dad also endured, as he had to forgo something else (perhaps a delicious steak dinner at Mr. Mikes) to pay for my foolishness.

Some (thankfully very few) commentators have commented that the recent earthquake may be just what Japan needs to "stimulate" its economy. This is a classic example of the Broken Window Fallacy. They could be forgiven for this error because the typical measure of a country's economy is the Gross Domestic Product (GDP). The GDP is a measure of all wealth generation but not of wealth destruction. This leads to the paradox that building a house, burning it to the ground, and building it again creates a higher GDP than just building it once.

Let's go back to that cursed croquet game. Imagine that instead of breaking the window, the ball duplicated it. Sitting on the ground is the wayward ball and an exact duplicate of the window, frame and all. Since this is the exact opposite of the above situation, it is easy to see what economic results are. We can sell the free window and pocket the money (hello Mr. Mikes!) Unfortunately, the glazier will not be happy when he finds out about our magic window duplication scheme. Wealth is created in the world, but not all the world.

Which leads to my final thought ... on copyright infringement. Copying a CD, a movie, a book, or a photo will indirectly remove some wealth from the owner of the content, just like it the glazier in the second universe. But this will not remove wealth from the economy. It cannot. Just like a broken window cannot add wealth overall, a duplicate window must add wealth.