How The Salvation Army Commits The Broken Window Fallacy
Every year during the Christmas season, the Salvation Army sends out bell ringers to collect donations as part of its annual Red Kettle campaign. These bell ringers stand in public places or at entrances to large shopping centers and ring handbells loudly and incessantly, stopping only momentarily to express gratitude when someone makes a donation. This business model for charitable donations appears to work (otherwise it would be discontinued), and the funds are used for noble purposes, but there is a problem with the Red Kettle campaign. It focuses on what is seen and ignores what is unseen, which is one of the most persistent errors in economics. It was pointed out by Frédéric Bastiat in 1850, and has become known as the glazier’s fallacy or the broken window fallacy.
The broken window fallacy gets its name from the parable of the broken window, which was discussed by Frédéric Bastiat in his 1850 essay Ce qu’on voit, et ce qu’on ne voit pas (That which is seen, and that which is not seen) to illustrate why destruction, and the resources and effort required to rebuild after destruction, is not a net-benefit to society. The parable demonstrates that the modern economic concept of opportunity cost, along with unintended consequences, has an effect on economic activity that is frequently ignored.
Bastiat told a parable about a shopkeeper’s son who threw a rock through the window of the family business. The glazier then gets the business of repairing the window, and then he can buy some clothes from the tailor, who can then buy bread from the baker, and so on. This is what is seen. But if the shopkeeper did not have to fix his window, he could spend his money on something else. Perhaps he could buy some clothes from the tailor, who can then buy bread from the baker, and so on. This is what is unseen.
Bastiat, along with Austrian School economists, often used this story figuratively, with the glazier representing special interests and the boy who breaks the window representing government intervention. But this case requires a different interpretation. In this case, what is seen is that people donate when the Salvation Army workers set up a red kettle and ring their bells. What the Salvation Army workers either ignore or fail to realize is that their bells can be off-putting to people who are annoyed by ringing noises, repetitive noises, loud noises, or some combination of the aforementioned. Such people will be disincentivized from giving donations, but because there is no way to count a non-donation, this cost to their organization is hidden. To simply dismiss this effect in favor of giving attention only to the donations that are given is to commit the broken window fallacy.
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