Broken Window Fallacy: Will Disarmament Lead to Massive Unemployment?

Recently, I have been reading "Economics in One Lesson". This is just an introductory book on economics, but I have gained a lot from it. The more I learn, the more I realize how ignorant I am.

After the military parade, Xi announced a reduction of 300,000 troops, sending a signal of peace. There has been discussion on Weibo about whether this disarmament will lead to massive unemployment. I would like to share my thoughts based on what I have learned from this book.

The core concept of this book is the "Broken Window Fallacy".

Broken Window Fallacy

A mischievous child breaks a shoemaker's window. Some say that because the child broke the window, the shoemaker has to buy new glass from the glass shop across the street, which gives the glass shop business. Let’s assume the glass costs 120 yuan, and the glass shop owner can use this money to buy other things. Similarly, this money circulates in society, promotes consumption, and creates more job opportunities, allowing the shoemaker's old glass to be replaced. In this sense, this mischievous child seems to have done a good deed!

However, the shoemaker originally intended to use that 120 yuan to buy a suit, but now he has to buy a piece of new glass instead. The tailor could have earned that money, but now this transaction will never happen. In other words, the shoemaker could have had both the glass and the suit, but now he can only have the glass. The opportunity for the suit transaction never occurred; it won't happen, and thus it is hard for people to notice. People can only see the glass shop owner, but not the tailor—because he, like that unfortunate suit, never had the chance to show up.

It seems that this mischievous child is indeed quite detestable. This is the Broken Window Fallacy. When considering an economic issue, we cannot only focus on the interests of one group; we must also consider the interests of other broader groups. We cannot only focus on immediate benefits but also take long-term benefits into account.

What Happens After Disarmament

First, these 300,000 people will leave the military and become job seekers in society. In other words, in the short term, these 300,000 people are unemployed.

But wait, since the expenses for these 300,000 people in the military are covered by taxpayers, this means that for every yuan spent on these 300,000 people, taxpayers have one less yuan to spend on the goods they want to buy. Corresponding transactions do not occur, and certain industries develop less, leading to fewer job opportunities. It is hard to notice the clothing merchants, daily goods merchants, and furniture merchants who should have earned money because these consumptions did not happen.

Now, due to disarmament, taxpayers no longer need to spend this money on them, and the corresponding purchasing power is released. Moreover, the 300,000 people who were originally supported by taxpayers are now entering the labor market and becoming part of the social workforce. As long as they are not lazy, they will always find work. In fact, due to the increase in taxpayers' purchasing power, corresponding industries can develop, and thus they will need to hire more employees.

Conclusion

In the short term, they will indeed be unemployed, but we cannot only focus on this group; we must also pay attention to the taxpayers, merchants from various industries, and their employees, who are often hard to notice in this story. We cannot only focus on their short-term unemployment but also consider the long-term value they can create for society.

In fact, the same reasoning applies to reducing civil servants.