Sunday, September 11, 2011

The Broken Window Fallacy vs. The Entrepreneurial Discovery Process

"On the anniversary of September 11, reflects on innovations that emerged out of the country’s most tragic event". I'm in two minds as to whether the tone of this article qualifies it as promoting the broken window fallacy or simply stating the plain old truth that a clear identification of a problem (and the attendant consumer wants) spurs entrepreneurial discovery. Let everyone judge the matter for themselves.

In any event, I think it is worthwhile in this context to underscore the significance of keeping in mind the essential difference between the claim that a catastrophe that brings us to the point -1 is actually a blessing in disguise, capable of subsequently hoisting us to the point +1 (which is sheer insanity), and the claim that such a catastrophe incentivizes entrepreneurs to come up with solutions capable of returning us to the point 0 (which is a basic insight about the nature of the market process). Without being absolutely clear about the above distinction, we might encounter difficulties separating important truths from pernicious falsehoods.

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