In the introductory chapter, it has an excerpt from an ex Fed chief (I think), who said this about unintended consequences and broken windows:
Economics training will help you understand fallacies and unintended consequences. In fact, I'm inclined to define economics as the study of how to anticipate unintended consequences. Most fallacies in economics probably are fallacies of composition: What's true of the individual may not be true of the whole. You may be able to see better if you stand up -- but not if everyone stands up. John Maynard Keynes' paradox of thrift provides a currently relevant example: Individually, most consumers need to save more. But, if all or many consumers start trying to save more, the economy will be in deep trouble.
However, little in the literature seems more relevant to contemporary economic debates than what usually is called the the broken window fallacy. Whenever a government program is justified not on its merits but by the jobs it will create, remember the broken window: Some teenagers, being the little beasts that they are, toss a brick through a bakery window. A crowd gathers and laments, "What a shame." But before you know it, someone suggests a silver lining to the situation: Now the baker will have to spend money to have the window repaired. This will add to the income of the repairman, who will spend his additional income, which will add to another seller's income, and so on. You know the drill. The chain of spending will multiply and generate higher income and employment. If the broken window is large enough, it might produce an economic boom! (Other catalysts to such booms might be a hurricane, a tornado or just about any government spending boondoggle.)
Most voters fall for the broken window fallacy, but not economics majors. They will say, "Hey, wait a minute!" If the baker hadn't spent his money on window repair, he would have spent it on the new suit he was saving to buy. Then the tailor would have the new income to spend, and so on. The broken window didn't create net new spending; it just diverted spending from somewhere else. The broken window does not create new activity, just different activity. People see the activity that takes place. They don't see the activity that would have taken place.
The broken window fallacy is perpetrated in many forms. Whenever job creation or retention is the primary objective I call it the job-counting fallacy. Economics majors understand the non-intuitive reality that real progress comes from job destruction. It once took 90% of our population to grow our food. Now it takes 3%. Pardon me, Willie, but are we worse off because of the job losses in agriculture? The would-have-been farmers are now college profs and computer gurus or singing the country blues on Sixth Street.
I think most mainstream economists understand and accept the broken window fallacy... they just fail at identifying it. For example, my econ teachers at college taught, understood, and defended broken window... but later made comments about war, natural disasters, etc., being beneficial. Maybe they understand it on a micro sense, but think it doesn't transfer over to the aggregate (so an INDIVIDUAL will be worse off, but his actions will still benefit the aggregate economy).
At least your professor is trying to apply the logic developed prior to 1850, and failing by saying that the logic that breaks in the Broken Window Fallacy enforces the reality of the other fallacy: "The Paradox of Thrift". And the dumb thing about the "Paradox of Thrift" is that people do not behave this way. If large number of people want to save then what happens: Interest rates, the payoff for saving, come down enticing savers to spend.
Maybe at some point we can get the economics profession to realize the "Calculation Problem".
This was an excerpt from Mankiw's Principles of Macroeconomics