Is Windows a Broken Window?

by on December 12, 2006 · 2 comments

Joe at Techdirt spots another example of every libertarian’s favorite fallacy:

Back in September, we noted that Microsoft had commissioned a study that tried to demonstrate how much of a boon the release of Vista would be to the European economy. The company bragged about the thousand of IT jobs that would be “created” due to people working on Vista installations. Of course, this was precisely the opposite of what the company should be touting. It would be far more impressive if they could anticipate how many existing positions in IT could be eliminated, freeing up workers to do jobs that produce more value than installing an operating system. Well, it sounds like the US is in for even more fun once Vista is released here. The company says it will create 100,000 jobs, and $70 billion worth of business. Put another way, companies will have to bring on 100,000 more people and spend another $70 billion to deal with the launch, if the figures are accurate. Why are they bragging about this again?

I think the basic insight here is correct, although it depends on what the workers are doing. If most of those 100,000 people are needed just to get Vista up and running, that’s clearly not something Microsoft should be bragging about. On the other hand, if most of those workers are engaged in (for example) creating new software products that rely on new features in Vista, then the number of workers employed might be a reasonable proxy for the amount of wealth created. In either event, Joe is clearly right that the number of workers required to administer a piece of software doesn’t tell us very much about how valuable it is.

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About Tim Lee

Timothy B. Lee (Contributor, 2004-2009) is an adjunct scholar at the Cato Institute. He is currently a PhD student and a member of the Center for Information Technology Policy at Princeton University. He contributes regularly to a variety of online publications, including Ars Technica, Techdirt, Cato @ Liberty, and The Angry Blog. He has been a Mac bigot since 1984, a Unix, vi, and Perl bigot since 1998, and a sworn enemy of HTML-formatted email for as long as certain companies have thought that was a good idea. You can reach him by email at leex1008@umn.edu.

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  • http://jed.jive.com/ Jed Harris

    Unfortunately knowing Windows, I’d guess the 100,000 will be needed just to keep it running. But that’s not what I wanted to talk about.

    I’ve recently been thinking about a close relative of the broken window fallacy, I don’t know if it has a name. It was very common in venture capital reasoning during the late 90s boom.

    The fallacy is thinking: “That technology is going to reduce the costs / friction / labor / whatever so much it will revolutionize that market. We can make billions!” Right about the first, wrong about the second. The hottest example right now is maybe CraigsList, where automating classified ads is cutting the heart out of the local newspaper business model, and CraigsList has three employees and will probably never go public.

    Of course CraigsList could make lots of money if they started “monetizing their eyeballs” (yuck), but in a competitive environment they’d eventually be forced to run at their marginal cost which is approximately zero. The reason this won’t happen is another set of paradoxes I won’t discuss now.

    So does this fallacy have a name? I think we’ll be encountering this situation more and more often…

  • http://jed.jive.com/ Jed Harris

    Unfortunately knowing Windows, I’d guess the 100,000 will be needed just to keep it running. But that’s not what I wanted to talk about.


    I’ve recently been thinking about a close relative of the broken window fallacy, I don’t know if it has a name. It was very common in venture capital reasoning during the late 90s boom.


    The fallacy is thinking: “That technology is going to reduce the costs / friction / labor / whatever so much it will revolutionize that market. We can make billions!” Right about the first, wrong about the second. The hottest example right now is maybe CraigsList, where automating classified ads is cutting the heart out of the local newspaper business model, and CraigsList has three employees and will probably never go public.


    Of course CraigsList could make lots of money if they started “monetizing their eyeballs” (yuck), but in a competitive environment they’d eventually be forced to run at their marginal cost which is approximately zero. The reason this won’t happen is another set of paradoxes I won’t discuss now.


    So does this fallacy have a name? I think we’ll be encountering this situation more and more often…

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