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Tiger Woods?

The Broken Window Fallacy Alive And Well

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From:

http://uk.news.yahoo.com/22/20100905/tts-uk-quake-newzealand-ca02f96.html

Many businesses in the South Island city of Christchurch remain closed as a state of emergency was extended until Wednesday after the country's most damaging earthquake in 80 years tore up roads, smashed water and sewer pipes, and severely damaged many buildings.

[snip]

But some predicted the quake -- which claimed no lives and resulted in only two serious injuries -- could add to growth in 2011 as rebuilding efforts ramp up.

Yeah! Nothing quite like a natural disaster to improve the economy.

Perhaps the kindest thing we could do is to bomb New Zealand (even further) into the stone age.

Edited by Tiger Woods?

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Well to be accurate, the economist quoted said it would have a negative effect on the economy, the PM said he wanted to get the city back up and running ASAP, and only an unnamed "some people" said it would have any positive effect. The same people who said Katrina would have a positive effect presumably. :rolleyes:

But yes, if true, a perfect example of the broken window fallacy.

War can be slightly different as it galvanises people into delivering extraordinary development projects which otherwise may take a lot longer. Did Japan and Germany benefit from WWII net-net? :unsure:

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It only works because so many areas are starving for money. So when money is thrown out of helicopters into the area, a lot of economic activity happens. otherwise a tremendous part of the population is idled. Even those with jobs are sitting idle a lot of the day, or bothering with tasks of low value, while they could be used at a much higher output level.

If the economy was already saturated with money to the point that everyone who wanted to work was working as much as they wanted.. and working on the highest value things they were capable of at work.. dropping money out of helicopters would not help GDP. It would only cause inflation.

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It only works because so many areas are starving for money. So when money is thrown out of helicopters into the area, a lot of economic activity happens. otherwise a tremendous part of the population is idled. Even those with jobs are sitting idle a lot of the day, or bothering with tasks of low value, while they could be used at a much higher output level.

If the economy was already saturated with money to the point that everyone who wanted to work was working as much as they wanted.. and working on the highest value things they were capable of at work.. dropping money out of helicopters would not help GDP. It would only cause inflation.

How does rebuilding something, which was knocked down by a disaster, add to the wealth of a country? You're just right back where you have started, but you have just wasted a load of time and money.

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There are some gov. /corp. boffins working on a 'Quake generator ' right now

Dibs on the railgun

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What if it makes people who previously hoarded all their money spend it?

If they 'hoarded' it (the rest of the world calls it saving by the way) in a bank then it won't make any difference as it will have been leveraged into loans anyway.

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If they 'hoarded' it (the rest of the world calls it saving by the way) in a bank then it won't make any difference as it will have been leveraged into loans anyway.

ok, what if everybody saved - doesn't have to be in a bank.

The velocity of money drops to virtually zero, and the economy stops.

Wouldn't the broken window therefore be an economic stimulus? It forces people to spend money they would otherwise not have.

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ok, what if everybody saved - doesn't have to be in a bank.

The velocity of money drops to virtually zero, and the economy stops.

Wouldn't the broken window therefore be an economic stimulus? It forces people to spend money they would otherwise not have.

It forces economic activity, but it doesn't produce wealth.

It just means idle people are forced to do something, when they could have been on the beach.

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How does rebuilding something, which was knocked down by a disaster, add to the wealth of a country? You're just right back where you have started, but you have just wasted a load of time and money.

Perhaps it does not literally add to the wealth of the country, but it requires builders who might otherwise be unemployed. They in turn have money to spend, which will increase the cash in other people's accounts etc.

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Perhaps it does not literally add to the wealth of the country, but it requires builders who might otherwise be unemployed. They in turn have money to spend, which will increase the cash in other people's accounts etc.

Whipping slaves will get statues erected too, but I doubt they feel any more wealthy.

I don't mean to sound like an ****, but really - breaking things, so that you need to fix them, is hardly improving the peoples' lot is it?

Edited by Traktion

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Perhaps it does not literally add to the wealth of the country, but it requires builders who might otherwise be unemployed. They in turn have money to spend, which will increase the cash in other people's accounts etc.

Who's paying for the builders? If it's taxpayers, money is taken from other people in increased taxes so they will spend less on other things. If it's insurers, money is taken from other people through increased insurance premiums. If it's people spending their life savings, money is coming from themselves in the future i.e. they will spend more today but less tomorrow. Ultimately the money has to come from somewhere, all you are doing is moving it around. The idea that you can mandate economic activity into existence as if by magic with no negative consequences elsewhere or further down the line is probably the most dangerous one of our times. Future generations will look back at us the same way we look at people who believed in witchcraft.

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It forces economic activity, but it doesn't produce wealth.

It just means idle people are forced to do something, when they could have been on the beach.

Indeed. Not good for governments and/or politicians.

Then again, neither does the excessive accumulation of money.

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As an aside, having products with a short lifespan, either through technological advancements, or just sloppy building/poor materials, I suppose could be seen as the broken window fallacy. Building a prduct that needs to be replaced every few years is good for the manufacturer, bad for the consumer and society, but good (in the short term) for governments.

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Who's paying for the builders? If it's taxpayers, money is taken from other people in increased taxes so they will spend less on other things. If it's insurers, money is taken from other people through increased insurance premiums. If it's people spending their life savings, money is coming from themselves in the future i.e. they will spend more today but less tomorrow. Ultimately the money has to come from somewhere, all you are doing is moving it around. The idea that you can mandate economic activity into existence as if by magic with no negative consequences elsewhere or further down the line is probably the most dangerous one of our times. Future generations will look back at us the same way we look at people who believed in witchcraft.

This is the point as far as I'm concerned.

Yes, GDP will increase, but only because the government has an excuse to borrow against future taxpayers.

In effect, steal GDP from the future.

It's not always bad. In this case, like war, probably justified, but most of the 'stimulus' is not.

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We need more earthquakes then to help growth.

Actually a 7.1 earthquake would be very beneficial for the UK, hardly any house would survive it, so the UK would finally have a chance to get a modern, well built housing stock like the rest of Europe and with a bit of effort it could lead to replanning of whole cities, widening roads and rebuilding modern infrastructure from scratch.

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Yap Yap... nonsense of the open window fallacy. If that works then we probably don't need much of the prison space as well - just send them round destroying things so that someone else can then spend the money to rebuilt it ?!

Edited by easybetman

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As an aside, having products with a short lifespan, either through technological advancements, or just sloppy building/poor materials, I suppose could be seen as the broken window fallacy. Building a prduct that needs to be replaced every few years is good for the manufacturer, bad for the consumer and society, but good (in the short term) for governments.

That's an interesting thought and probably true. Then again, those brands which tend to last have a good reputation for doing so. Although on the other hand, a B&W CRT TV that lasted for 50 years would probably be discarded long before it stopped working. I suppose there is a balance to be sought.

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As an aside, having products with a short lifespan, either through technological advancements, or just sloppy building/poor materials, I suppose could be seen as the broken window fallacy. Building a prduct that needs to be replaced every few years is good for the manufacturer, bad for the consumer and society, but good (in the short term) for governments.

Correct. The modern world completely ignores the fallacy.

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Yap Yap... nonsense of the open window fallacy. If that works then we probably don't need much of the prison space as well - just send them round destroying things so that someone else can then spend the money to rebuilt it ?!

Good idea! Think of all the extra jobs in private security.

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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