In this video you will be introduced to the economic effects of the 2009 government policy 'Cash for Clunkers'. This policy is an example of the so-called 'Broken Window Fallacy.' The 'Broken Window Fallacy' - also known as the 'Parable of the Broken Window' was introduced by French economist Frédéric Bastiat in his 1850 essay "That Which We See and That Which We Do Not See". In this essay Bastiat illustrates why destruction, and the money spent to recover from destruction, is not actually a net benefit to society. The broken window fallacy argues that there is no economic gain from fixing the destruction caused by a certain event. Even though capital will be spent to repair any damages, that is only a maintenance cost that does not spur the economy in the long run, as it is not a true increase in economic output. This fact arises from the recognition of the opportunity costs of the resources required to repair something that has been deliberately destroyed.
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