“Looting Does No Real Harm; Businesses Have Insurance”

I remember hearing apologists for the riots and looting throughout the United States in 2020 claim that these actions have no negative impact on businesses and the community at large because insurance covers the destruction. Businesses can simply rebuild and the economy will go back to what it was before. Some even asserted that the riots served as a form of racial “reparations.” Frédéric Bastiat wrote a famous parable published in 1850—which we refer to today as the “Broken Window Fallacy”—that can shed light on why this belief makes no sense. Suppose a child breaks a shopkeeper’s window. The shopkeeper must now pay a glazier to replace the window. An observer in Bastiat’s parable argues that replacing the window had positive economic benefits; the glazier increased his or her income and the glazier then uses that money to purchase goods or services from someone else. What this argument ignores is the opportunity cost of replacing the window. Bastiat states that “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented” (p. 3). In the case of the 2020 riots and looting, money, resources, and labor that could have been spent on building new homes, businesses, or providing other goods and services, are instead dedicated to fixing what was destroyed, resulting in economic regression for the community overall. Even though destroyed and looted businesses will be compensated by insurance companies, their insurance premiums will likely rise after such destruction and will encourage marginal producers to leave and discourage new businesses from opening because they can no longer afford to do business there.

Those who justify riots and looting as legitimate and productive forms of protest may not be considering the immediate and long-term impacts of these actions, especially on the poorest members of an affected community. One example of the devastating effects of riots comes from Detroit in the 1960s. Thomas Sowell writes that although black Americans living in Detroit had lower poverty rates, lower unemployment rates, and higher home ownership rates than black Americans overall, it was here that riots were most intense. Sowell argues that these riots turned an economically successful Detroit into “an economic disaster area…” for many years “…as businesses became reluctant to locate there, reducing access to both jobs and places to shop, and both black and white middle class people left for the suburbs” (p. 186). Activists cannot complain about underinvestment in low-income communities and then advocate for actions that discourage investment in the first place.

— Colin Braman

References

Frédéric Bastiat (2011). The Bastiat Collection (2nd ed.). Ludwig von Mises Institute.

Thomas Sowell (2011). Economic Facts and Fallacies (2nd ed.). Basic Books.