The Broken Window Fallacy

[Habeas Domus]

Someone play this to a few of our glorious politicians...

[lowrentyieldmakessense(honest!)]

Someone play this to a few of our glorious politicians...

yep krugman is a danger to humanity

[Guest_ringledman_*]

yep krugman is a danger to humanity

Krugman is a complete spanner. his 9/11 quote is a disgrace.

Peter Schiff was on fast money once with another spanner talking about Katrina being good for the economy.

Some people have no idea about economics.

Edited July 31, 2010 by ringledman

[interestrateripoff]

yep krugman is a danger to humanity

Amazingly he's gets the Nobel Memorial Prize in Economic Sciences awarded to him for being an economic terrorist.

[lowrentyieldmakessense(honest!)]

Krugman is a complete spanner. his 9/11 quote is a disgrace.

Peter Schiff was on fast money once with another spanner talking about Katrina being good for the economy.

Some people have no idea about economics.

i think a lot of them know the truth - but want to keep the system as is just for the power

[lowrentyieldmakessense(honest!)]

"Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.

Legal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest free credit, etc., etc. And it the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism

[Giordano Bruno]

Krugman is a complete spanner. his 9/11 quote is a disgrace.

Peter Schiff was on fast money once with another spanner talking about Katrina being good for the economy.

Some people have no idea about economics.

This fallacy was depicted as a favourite policy among the powers behind President Bush, because it was good for their affiliated companies which could profit from disasters, by Naomi Klein in her book, 'The Shock Doctrine'. I only read part of it because although it seemed true I found it too depressing.

http://www.naomiklein.org/main

[AvidFan]

Gotta post "The Krugman Blues" link again:

From his new album - 10 Songs For The New Depression:

http://www.amazon.co.uk/Songs-For-The-New-Depression/dp/B003AV6Z8C

£6.99 from all good retailers. If you can afford it and not go hungry.

Edited July 31, 2010 by AvidFan

[easy2012]

Someone play this to a few of our glorious politicians...

It depends whose windows are broken really.. During WWII - German destroyed most of european production capacity and then US and the Allies destroy the German's.

Result : big plus for US factories.

But - yes, krugmanomics is silly... and the fact that his actually won a noble prize make me think what Nobile prize is actually worth...

[aa3]

Breaking windows and then paying to repair them is pretty silly as a way to get money into the economy. If nothing productive can be found to be done, it would be better to simply give money to people.

[Lone_Twin]

Breaking windows and then paying to repair them is pretty silly as a way to get money into the economy. If nothing productive can be found to be done, it would be better to simply give money to people.

But you would have to take it off the productive, either in tax or inflation. Where then is the incentive to produce?

The better solution would surely be rather than to redistribute the produce, to redistribute the inactivity. If the world (theoreticaly) can produce sufficient for everyone to have decent standard of living based on only (theoreticaly) 80% of people working rather than steal money from the 80 to let the 20 stay idle let's all just agree not to work Friday.

[mattyfc]

I have been wondering how long it will be until the idea that Government spending decreases growth is picked up by the media. All we hear about is how all this spending is helping the economy. The argument seem to ignore two key pieces of information.

Public spending is financed by the private sector, more public spending means higher taxes on the private sector. The private sector creates almost all of the growth in the economy. By taxing the private sector you reduce economic growth in the private sector as businesses can invest less and pay less.

Government debt is serviced by selling Guilts. If investors did not buy gilts they would have the capital free to invest in other things. For example businesses, which actually stimulate growth.

Cutting public spending back to the level at which it actually benefits the economy will massively increase growth in the long term, not reduce it.

[(Blizzard)]

What if the baker wants to spend his money on a vuvuzela? Or a sign made from radium? Or land?

EDIT: Is a Dizzie Rascal record a broken window, or a suit?

Edited August 1, 2010 by (Blizzard)

[(Blizzard)]

What if the baker wants to spend his money on a vuvuzela? Or a sign made from radium? Or land?

EDIT: Is a Dizzie Rascal record a broken window, or a suit?

Perhaps I am being too obtuse?

I'd like to understand economic theory much better than I do, and one of the barriers to understanding I have is that details always seemed to be sacrificed in favour of just so stores and oversimplified models.

I could argue that the 'broken window fallacy' is largely, but not entirely, an ideological position, rather than a logical one.

Clearly in the actual example of vandalism it seems common sense. When you try to apply it in more general situations, it becomes more complicated.

First of all, we want to claim that discretionary spending is always better for the economy than forced spending. But the economy is just a bunch of people, so we need to know which individuals actually benefited. If the economy gets richer but I get poorer, or most people get poorer, or young people all get poorer, then why should I care?

What if the people who get the discretionary spending, wish to spend it on things that make me, or my friends or all young people's lives worse? How about if they spend it on a vuvuzela?

What if I steal the money that would be spent on a vuvuzela, and use it to invest in medical research? Have I damaged the economy?

Also, what do you mean by forced? Am I forced to buy clothes for my girlfriend? Am I forced, through social pressure, to denote money to charity?

Then, in order to be consistent, we need to see the 'damage' as simply an economic choice made by some other individuals. Maybe the window smasher gain some economic benefit by smashing the window. If he hadn't smashed the window, he would have had to spend his money on a DVD. Now he can buy a suit instead. He has his entertainment, and a suit.

It all seems circular, all about morality and subjective justifications. On the other hand, it does make a perfect justification for removing all constraints on the behaviour of the rich, by claiming that any restrictions make us all poorer.

Could anyone explain this to me in an objective way, because I find it all very confusing.

Edited August 1, 2010 by (Blizzard)

[Tired of Waiting]

Someone play this to a few of our glorious politicians...

Excellent.

Thanks for posting it.

And the video even ignored a very important aspect of the problem: When the government intermediates expenses, it takes a cut, a large share of it, to pay for public sector workers that are just managing the intermediation of these expenses, paper pushing, instead of working in other sectors of the economy, creating and increasing real wealth.

[Jie Bie]

That video seems to have a massive logical gap where it discusses the population using their discretionary spending to create jobs, rather than the government doing this via taxation. What immediately popped into my head was the thought that the ordinary people are highly likely to spend their discretionary incomes on imported goods, made in countries where its much cheaper to employ labour. Same applies for foreign holidays, or purchasing property overseas.

That's not to say I think we should all head out and smash windows left right and centre. I think I agree with the earlier poster who said that this "fallacy" is more of a debtating tool which can be used by people of a certain politcal persuasion to encourage lower taxes.

[aa3]

But you would have to take it off the productive, either in tax or inflation. Where then is the incentive to produce?

Yes imo it is only justifiable when being used to prevent deflation.

The better solution would surely be rather than to redistribute the produce, to redistribute the inactivity. If the world (theoreticaly) can produce sufficient for everyone to have decent standard of living based on only (theoreticaly) 80% of people working rather than steal money from the 80 to let the 20 stay idle let's all just agree not to work Friday.

France has successfully done this. A combination of a shorter work week, longer vacations, more statuatory holidays, earlier retirement.

For France with its very large successful corporations and big government it works especially well. In Britain with all the contractors and business owners it might not work as well. That is why I more favour the citizen's dividend for Britain.

[Tired of Waiting]

That video seems to have a massive logical gap where it discusses the population using their discretionary spending to create jobs, rather than the government doing this via taxation. What immediately popped into my head was the thought that the ordinary people are highly likely to spend their discretionary incomes on imported goods, made in countries where its much cheaper to employ labour. Same applies for foreign holidays, or purchasing property overseas.

That's not to say I think we should all head out and smash windows left right and centre. I think I agree with the earlier poster who said that this "fallacy" is more of a debtating tool which can be used by people of a certain politcal persuasion to encourage lower taxes.

Sooner or latter exchange corrects international accounts.

[Tired of Waiting]

(...) A combination of a shorter work week, longer vacations, more statuatory holidays, earlier retirement. (...)

All of these reduce productivity, and is counter-productive in the long term. Germany shows the sustainable, long term solution: good infra-structure (including housing stock), and highly skilled and educated labour force.

In the long run, there is no scape from the fundamentals. And productivity is key.

.

Edited August 1, 2010 by Tired of Waiting

[(Blizzard)]

Sooner or latter exchange corrects international accounts.

I do not think currencies are not as important as people seem to think, in the long term. The cost of a good is set by the international market for the good, which is unrelated to the international market for the currency.

So if the pound falls, British producers will ultimately be forced to increase their prices. Its a bit more complex than that, there will be a temprary effect as the new equilibrium price for the good is established, labour markets aren't perfectly mobile, and it permanently changes the wealth of sterling debtors and sterling savers. Overall though, I think that currency devaluation is a bit of a charade in the long-term.

I'd be willing to see evidence otherwise.

However, this doesn't affect the window fallacy, which is that 'forced' spending is always 'worse' for the 'economy' than 'unforced' spending. What if the two economies have the same currency? The cross border argument, is really the same as my argument that I shouldn't care if the unforced spending goes on things that do not benefit me, or my friends, or people I care about.

I'm not saying I approve of government spending, or anything like that, I just don't get this argument. I'd like to know how to make it work. What do professional economists make of it?

Edited August 1, 2010 by (Blizzard)

[(Blizzard)]

All of these reduce productivity, and is counter-productive in the long term. Germany shows the sustainable, long term solution: good infra-structure (including housing stock), and highly skilled and educated labour force.

In the long run, there is no scape from the fundamentals. And productivity is key.

.

But this 'cost' to the economy is just the discretionary spending of the richest person in France - the government. So then we shouldn't try to stop it, should we?

I'm confusing myself now.

[Bloo Loo]

England really got Rich out of the Blitz.

[Guest Steve Cook]

Someone play this to a few of our glorious politicians...

Definition of fallacy = a bit knobbish

[Parkwell]

The government may as well take it to the logical end. Anyone claiming benefits for more than a year is executed.

Wheat. Chaff. Simples.

[Guest Steve Cook]

Definition of fallacy = a bit knobbish

Fallus = p*nis

Fallacy = somewhat like a p*nis

Venacular of p*nis = knob

Therefore, fallacy = somewhat knobbish

I'll get me coat

Edited August 1, 2010 by Steve Cook