{"id":1189,"date":"2014-03-12T17:51:08","date_gmt":"2014-03-12T16:51:08","guid":{"rendered":"https:\/\/blog.iese.edu\/economics\/?p=1189"},"modified":"2015-03-17T11:55:23","modified_gmt":"2015-03-17T10:55:23","slug":"what-is-the-economy-and-why-charlie-chaplin-misunderstood-it","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/economics\/2014\/03\/12\/what-is-the-economy-and-why-charlie-chaplin-misunderstood-it\/","title":{"rendered":"What is \u201cthe economy\u201d and how did Charlie Chaplin misunderstand it?"},"content":{"rendered":"
\"Charles-Chaplin,
Charles-Chaplin, The-Kid, 1921<\/figcaption><\/figure>\n

Oh no, not again, more theory about what economists do!\u00a0 Don\u2019t worry;\u00a0 today it\u2019s about Charlie Chaplin<\/strong> and broken glass too.\u00a0 The other day I read a letter to the editor in the FT<\/i> titled, \u201cEconomics in just one sentence<\/strong>\u201d (in the February 25, 2014 paper version).\u00a0 It dealt with the question at hand – what is the economy \u2013 and quoted Economics in One Lesson<\/a><\/strong>,<\/i> by Henry Hazlitt<\/strong> an author of whom I am a big fan:<\/p>\n

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”<\/i><\/h3>\n

It\u2019s great, isn\u2019t it?\u00a0 Think about all the confusion we would avoid if we thought about the economy in the way that he suggests<\/strong>. It reminds me of a Charlie Chaplin<\/strong>\u00a0\u201cCharlot\u201d<\/strong>\u00a0movie called\u00a0“The Kid<\/a>“, from 1921\u00a0(I assume that the young folks out there have heard of him, and may have even seen one of his remarkable movies.)<\/p>\n

What Charlot didn’t understand<\/h3>\n

Charlot works repairing broken windows<\/strong>; he walks around the city with a window tied to his back, going from house to house replacing broken glass.\u00a0 Charlot has an associate, \u201cthe kid,\u201d who runs ahead of him throwing rocks<\/strong>.<\/p>\n

For Charlot, business is good: He creates employment<\/strong> (his and the boy\u2019s), he develops the glass manufacturing business, and he stimulates the GDP<\/strong>.\u00a0 Great!\u00a0 But the story doesn\u2019t tell us about the \u201cother consequences\u201d<\/strong> of that economic development, namely, the losses suffered by the tenant of the homes with broken windows, and all the economic growth that could have been fostered if the money spent on the broken window had been spent on something else<\/strong>, which the landlords would have preferred.<\/p>\n