Uk Economy Will Stall Until 2013, Says Item Club

[campervanman]

I disagree. In the vast majority of cases the cash is not coming from someone who has an infinite pool of cash, and instead there is an opportunity cost.

If you think I'm wrong just kick through a few of your own windows - it's free :-)

What if the window is an old single glazed one that needs replacing? In that case, spending 'money you havn't got' in order to reduce costs down the line benefits both you (long term) and the company/individuals supplying the replacement windows (short term) as well as the companies/individuals you and they spend the money with that "you never had" but have now created.

[frederico]

Good to see the venting towards these wealthy old boys clubs.

Very true comments about the way the idiots calculate GDP

[zugzwang]

Perhaps the economy isn't a self-repairing, equilibrium-restoring machine independent of its environment in which private debts don't matter?

Perhaps the markets aren't peopled by utility-maximising rational actors investing their surpluses in an informationally efficient manner?

Perhaps neoclassical economics is just political ideology dressed up as science telling the rich and powerful what they want to hear?

[bmf]

What if the window is an old single glazed one that needs replacing? In that case, spending 'money you havn't got' in order to reduce costs down the line benefits both you (long term) and the company/individuals supplying the replacement windows (short term) as well as the companies/individuals you and they spend the money with that "you never had" but have now created.

Clearly that's an investment. The OP was saying the broken window fallacy is a fallacy. To transplant your example to this it would be:

widow breaks window on purpose

then spends money to fix

in order to save on heating

[bmf]

http://m.guardian.co.uk/business/2012/oct/14/gdp-forecast-laughs?cat=business&type=article

Says it all really.

Great to see. This is what we need - don't bother descending into all their mumbo-jumbo - just mock them and dismiss them based on their record.

[erat_forte]

What if the window is an old single glazed one that needs replacing? In that case, spending 'money you havn't got' in order to reduce costs down the line benefits both you (long term) and the company/individuals supplying the replacement windows (short term) as well as the companies/individuals you and they spend the money with that "you never had" but have now created.

Not only is that an investment, but the old single glazed window has value if it is an antique piece of wobbly glass in a nice wooden frame. Instead of smashing it you could sell it on to architectural salvage.

The 'broken window fallacy' is about deliberately decomissioning a thing then replacing it to the same spec, so as to spend money into the economy.

YOu can see the same deal if Mrs Smith and Mrs Brown live next door to each other, each has 3 kids, each looks after them at home. Net addition to GDP = 0

If they each become professional childminders. Mrs Brown sends her 3 kids to Mrs Smith's for the day, Mrs Smith sends her kids to Mrs Brown for the day. Each charges a fee of £100 per day. Net addition to GDP = £200 per day.

So from a GDP point of view the second scenario is better, is anti-recessional, etc. Never mind that the kids are no longer being looked after by their own mothers. GDP is up. Hooray!

[LeeT]

Is there some double counting going on in GDP figures?

Prices of new houses are counted as investment and add to GDP.(a largish one time addition).

Once built either rent (if rented) or imputed rent (if owner occupied) is added to GDP.(smallish annual additions).

Is this correct as It makes no sense to me?

Secondly

I believe imputed rent is based on house prices.

Do they adjust for unoccupied property?.

[NEO72]

Mr Spencer said: "One of the biggest headwinds facing the UK has now begun to ease – lending has started to loosen up and we're hopeful that the housing market is primed for a recovery early next year.

Right, so their guesses estimates are based on hope - just close your eyes and wish real hard - that'll explain the outstanding hit rate then. Of course, the only prediction that can be made with 100% accuracy is that the Express will pounce:

PROPERTY PRICES 'TO RISE BY 4.4%'

HOUSE prices will rise by 4.4 per cent next year, accordingto an influential City organisation.

In a report out tomorrow, the Ernst & Young ITEM Club predicts that the property market will finally recover after plunging 19 percent in value since its peak in 2007.

The dearth ofhousebuilding and an improvement in the availability of mortgages due to the Government's Funding for Lending scheme is likely to trigger a spate oftransactions.

The 4.4 per cent rise will reverse a one per cent fall in 2012 according to the club's chief economic advisor, Peter Spencer.

In tomorrow's statement, he says: "By around mid-2013 weexpect a recovery to take hold as credit availability loosens further, whileover the longer term the mismatch between demographics and housebuildingsupports a sustained growth in prices."

Mr Spencer warns it will take four years for house prices toreturn to their pre-2007 levels.