Discussing with a Keynesian -broken window fallacy..need some help!

Economics Economics Questions
61

Well yeah, I mean anyone who doesn’t have some kind of mental disability can learn something…my point was it all depends on how much time you’re willing to dedicate and how much you’re willing to put up with. There’s opportunity costs to everything, and like I said, if your goal was to simply educate people, there are ways to be much more effective.

I was talking to someone else in this thread, lining out best practices for debating people and used the analogy of the gold coin room:

Suppose someone took you and a large group of people into a room with gold coins all over the floor, and told the group you all had 15 seconds to pick up as many as you could…but some of them were glued down. When he says “go” you’re not going to sit there and pick at a glued one…you’re going to test it, and if it doesn’t budge, you move on. You’ll have much more success that way.

Granted, not all people are the same (unlike gold coins), and you may have a personal investment in some people…as in, it may be important to you that a relative or close friend (like “Mark”) be persuaded. So it will have to be up to you to determine how much time you’re willing to invest in picking at that glue. You just have to remember why you’re doing it, why it’s important to you, and that there are always opportunity costs…as in, if your real goal is persuading people and spreading the ideas of liberty, you can be much more successful at that by not spending as much time with the ones that are glued down so tightly. Just keep in mind that every 10 minues you spend fighting windmills with one person. you could probably be actually persuading 10 people who actually want to hear your message. Who deserves to hear it more? Those who are willing to listen, or those whom you decide need to hear it?

But yes, I actually do think Economics in One Lesson is probably the best book for someone like Mark. Perhaps even What Ever Happened to Penny Candy?. It’s definitely geared toward a younger audience, but as you can see from this quick anecdote, anyone can benefit.

62

Perhaps I am a bit too excited about this, but this might help:

The Forgotten Depression of 1920

63

Yeah, I’d say you are. If I’d have known you weren’t aware I’d have informed you a long time ago.

64

He doesn’t want to be shown up by you. Why? shrugs shoulders Age, gender roles, education, etc.

As John James said suggested, you gotta figure out what your goal is with him. I would have pointed out all of the fallacies at the beginning, which probably would have frustrated him to the point of quitting or name calling. But at least it would have shown that he is closed-minded.

65

Hm, Muffin might be on to something. Perhaps if you save your strongest arguments for somewhere in the middle, they will be more convinving. Because usually, debates go like this:

Side 1_________________ |___________ Side 2

Strong argument A ________| Strong counter B. Argument C

Strong counter D , weak arg E| Weak F

Weak G _________________| Weak H

→ Minutia where people just quit …

The details are where people get lost. If you can be very strong when discussing the details, it might increase your chances of success.

66

Took the advice with moving on to easier coins. Great advice. I flawlessly got a few people today that will be extremely valuable to have on our side. I realized a way to talk to co-workers about it without sounding like your pushing it on them. I do this by creating a situation where they bring it up first.

It’s a 40 minute boat ride home so I like to just read different libertarian or austrian books while waiting. They ask what i’m reading, and I tell them all about it. Two of the gentlemen I talked to asked if I could lend them a book. ..Though it could partially be do to their curiosity of how someone can get so passionately excited when talking about a book on economics. Either way it’s a start.

Basically always carry around a book. People are always curious about what others are reading, especially when they see it’s not Twilight. Makes for an easy way to more naturally flow into a political conversation.

67

That’s awesome. It’s quite an interesting situation where you’re commuting with people you know every day like that. That’s a very unique opportunity of a captive audience you have there. Great to see you’re able to take advantage of it.

The book thing is a classic strategy. Never gets old. (That’s one reason to be thankful for all the great LvMI covers :wink: ) Be sure to check the reading lists for suggestions on titles. (My work-in-progress of listing by difficulty is here)

68

My cousin considers himself a pragmatist (aka liberal) but he recently said to me “hey, I found this really cool book online called Economics in One Lesson.” I was like yessssss…

69

http://www.youtube.com/watch?v=s5ncrWL6tR8

70

Note that the “scenario” is inherently flawed from an Austrian PoV since no one except a coin/currency collector desires money (not even a miser desires money, he just has really, really low time preference and this evinces itself in the size of his bank accounts).

Clayton -

That’s an interesting perspective. I’d like to learn more about it sometime. Is that kind of like the difference between use-value and exchange-value–i.e. the only use of money is getting rid of it? Still I find it hard to say that “no one except a coin/currency collector desires money.” Maybe you misunderstood what I meant by “desire” (or just wanted to educate me about the finer points of AE, which is OK).

71

John James

You mean in your single iteration scenario in which there exist only 3 people, all of whom only desire 1 thing, (two of whom’s desire is something they can’t even eat), and once they get that one thing, all human desire will be satisfied, leading to no further human action for all eternity. Yes, this is a very great analogy.

Well certainly I chose to cut it off at an arbitrary point, but so did Hazlitt, did he not? I don’t see how one can draw conclusions about universal economic laws from his scenario anymore than they can from mine. Why do you think his scenario is such a great analogy? How does it overcome the faults that are in mine?

Why not? What’s different? A broken window is a broken window, is it not? What makes one situation different from another? Why would there be stimulus in one situation and not in another? Please explain.

Oh? You mean that if the baker had broken his own window on purpose to put in a new one it would have the same negative effects as if a vandal had broken it? A broken window is a broken window!

Surely the effect will depend on what sort of action breaking the window will promote or allow for. This differs from situation to situation.

That’s completely irrelevant. The government could easily order everyone out of town so that the city might be bombed to improve the overall economy. Just like evacuating for a hurricane. Why is this not done?

First of all, I find it amusing how you imply that the government always takes the correct action to improve the overall economy. But more to the point, destroying everyone’s property will not meet the two criteria in the same way. In my scenario, only a minority loses property (or utility or whatever). His losses are in effect redistributed to the majority. If city A is magnificently rich, and cities B and C are completely poor and unemployed, then destroying city A may indeed improve the standard of living of cities B and C. But destroying city A would not help lead to the fulfillment of the two criteria within city A–unless we hypothesize completely different factors (e.g. the houses could be contaminated by disease).

72

Autolykos: Surely you know that that wasn’t my point. My point was that your hypothetical example - specifically your “Scenario 2” - is used to present a “counter-argument” that is nevertheless fallacious, as it clearly embodies the nirvana fallacy. Your other scenarios also seem to embody it, but more subtly, as they also involve conditions under which, by some arbitrary rubric (which you implicitly change from one scenario to another), the “best” outcome is not reached without breaking the window.

Do you think Hazlitt avoids the nirvana fallacy in his scenario? Is his rubric arbitrary?

You must understand that I am not trying to argue for some universal economic law based on my scenarios. Quite the contrary, I’m trying to dispel such a notion. If one puts up an arbitrary scenario to prove a universal point, then all I have to do is put up one contrary scenario to disprove that point. If Hazlitt wants to make an inductive argument–that is, that breaking a window has such and such effects most of the time–then it is up to him to present evidence in support of such a position. A singular, hypothetical example just won’t cut it for me. However, a singular, hypothetical example is all that’s needed to disprove his deductive reasoning.

73

A month later?

No he didn’t. Hazlitt didn’t cut anything off. It is only your scenario that each member of the entire human population has only one desire each, and once that single desire is fulfilled, human action has no reason to continue.

You might as well be talking about scenarios in which A might not equal A.

Um. Yes?

You’re going to have to elaborate on this. Perhaps an example or two of some circumstances in which the same thing results in different outcomes.

Where do the gains come in? You destroyed one guy’s stuff…and somehow socialized those losses to everyone (how you did this, I have no idea. Perhaps a tax-and-bailout scheme, I don’t know). But somehow, you “redistributed” the losses to the majority. So it’s not just the man who has lost, everyone has lost. Either way, whether the man suffers his losses on his own, or he gets bailed out, please explain how any of this loss makes the overall economy better off.

74

No he didn’t. Hazlitt didn’t cut anything off. It is only your scenario that each member of the entire human population has only one desire each, and once that single desire is fulfilled, human action has no reason to continue.

You might as well be talking about scenarios in which A might not equal A.

Yes, he did. He said that one suit would not be produced because the baker had to spend the money on a new window. How does he know that the glazier (or someone farther down the line) won’t spend the same money on the suit? To say that one suit won’t be produced is to only say that one suit won’t be produced in a given period of time.

I could multiply the number of each person’s desires by 100, the timeframe by 100, and the number of people by 100–and I bet I could still come up with a scenario with the same outcome. But really, would that satisfy you anymore than the simplified one that I presented?

You’re going to have to elaborate on this. Perhaps an example or two of some circumstances in which the same thing results in different outcomes.

The baker’s window has a crack in it, making the store appear run down and scaring off customers. The baker breaks the window and hires the glazier to put in a new one. The baker’s business increases as a result of the improvement. The breaking of the window in this case makes both the baker and the glazier better off. Whereas in Hazlitt’s scenario, only the glazier is better off–the baker is worse off.

Where do the gains come in? You destroyed one guy’s stuff…and somehow socialized those losses to everyone (how you did this, I have no idea. Perhaps a tax-and-bailout scheme, I don’t know). But somehow, you “redistributed” the losses to the majority. So it’s not just the man who has lost, everyone has lost. Either way, whether the man suffers his losses on his own, or he gets bailed out, please explain how any of this loss makes the overall economy better off.

Maybe I wasn’t clear. His losses are others’ gains. There’s no bailout. Rather it is more akin to a redistribution of wealth from the rich to the poor. Imagine a town of 1000 people. One of those people is a jeweler with a window display containing 999 diamond rings. One person breaks the window, takes the rings, and distributes one to each person in town. This meets one of my criteria of evaluation–one person loses and 999 gain. Now whether it can be said that this “makes the overall economy better off” is not something I have addressed. I’m not sure what that even means.

75

Because resources that were consumed to replace a window cannot be used for something else. See here.

The baker needs to break his window before he can replace it? I’ve never heard of that in my life. The window could quite possibly be repaired for a lessor cost, but even if couldn’t, it could certainly be replaced without taking the effort to break it, and creating a mess to clean up…thus putting extra cost on the baker.

You wouldn’t be just creating an unrealistic businessman just to try and make your example work, now would you? Not to mention, the window in Hazlitt’s story doesn’t seem to have this frightening crack that is the driver of your entire scenario.

Um. That is not what you said. You literally said “His losses are in effect redistributed to the majority”. Redistribution of losses is the same thing as “socialized losses”. When you redistribute something you spread it around among other people. The only way to redistribute losses is to force other people to pay for someone else’s misfortune. This is also called a “bailout”.

Um. That’s the whole foundation of what we’ve been discussing. An overall economy being better off means the population as a whole is wealthier than before. The entire point of the parable of the broken window is to illustrate that destruction of property does not make the population wealthier, it makes the people poorer overall.

Take it on a large scale to make it more easily seen. Before the bomb went off we had a whole city. Buildings and homes all filled with useful goods. Streets to get around, making travel and commerce easier, an infrastructure that provided convenient electricity and water to residents, making their lives much more comfortable than they otherwise would be. Now, after the explosion, all that stuff is gone. Resources are now going to be consumed to rebuild all of that stuff. Physical raw materials, time, labor…all going into replacing what already existed. If the destruction had not occured, all of that collective effort could have gone to other things…production of more goods and services that people desired. People already had the houses and the buildings and the roads and the parks. All those materials and time…all those resources could have built…another city. (Or god knows what else. Think about the resources it takes to create a city. What couldn’t be done with that kind of capital and productive activity?)

They could have built another Disneyland. And the world would have had a brand new theme park to enjoy. But all that time, effort, and capital instead went into recreating what had already existed. After consuming god knows how much raw material, how many lifetimes of man hours, how many armies worth of labor…we’re just right back where we started. All that effort, just to get back to where we already were. The world lost a theme park (or who knows what else).

This is the whole point of the parable…destruction of wealth does not create wealth.

76

Because resources that were consumed to replace a window cannot be used for something else. See here.

What you are saying is that the glass for the new window cannot be used for something else (as opposed to the money used to buy the window), whereas if the window was not broken it could be?

The baker needs to break his window before he can replace it? I’ve never heard of that in my life. The window could quite possibly be repaired for a lessor cost, but even if couldn’t, it could certainly be replaced without taking the effort to break it, and creating a mess to clean up…thus putting extra cost on the baker.

So if the “kid” who threw the rock at the window in Hazlitt’s scenario instead carefully removed the window and threw it away, that wouldn’t be an example of the broken window fallacy? How about this? They didn’t carefully remove the windows, and they made a huge mess. Is that an example of the broken window fallacy–does it destroy wealth? You say a broken window is a broken window.

You wouldn’t be just creating an unrealistic businessman just to try and make your example work, now would you? Not to mention, the window in Hazlitt’s story doesn’t seem to have this frightening crack that is the driver of your entire scenario.

I am not saying that Hazlitt’s scenario doesn’t present an example where net wealth is destoyed. Rather, you asked me to present alternative variables where breaking a window could lead to an overall increase in wealth (if we are accepting that as the same thing as my two criteria).

Um. That is not what you said. You literally said “His losses are in effect redistributed to the majority”. Redistribution of losses is the same thing as “socialized losses”. When you redistribute something you spread it around among other people. The only way to redistribute losses is to force other people to pay for someone else’s misfortune. This is also called a “bailout”.

Sorry for the confusion. I meant that the property he lost (i.e. the money) was redistributed to other people.

Um. That’s the whole foundation of what we’ve been discussing. An overall economy being better off means the population as a whole is wealthier than before. The entire point of the parable of the broken window is to illustrate that destruction of property does not make the population wealthier, it makes the people poorer overall.

Part of the problem is that what constitutes creation vs. destruction is in no way neutral. In order to make wood for construction, one must destroy a tree. If destruction of property necessarily means that wealth is destroyed, then cutting down a tree necessarily destroys wealth. But if nothing can be destroyed, then how can wealth be created? Isn’t it rather more relative than that? Isn’t it possible to destroy the “wealth” of those who enjoy hinking in a forest preserve by chopping it down while at the same time creating wealth for those who get to live in houses made from that wood?

Perhaps the thing I find most troubling about Hazlitt’s argument is not that he uses it to explain instances where poverty has followed property destruction, but rather that he uses it to explain away instances where the reverse seems to be true. He says, “look, all of the empirical evidence leads you to think that World War II got us out of the Great Depression. But look! I have one highly idealized example that proves that it’s not true!”

(Whether WWII really did get us out of the Depression or not, I don’t wish to address. I merely assert that such an example that Hazlitt presents is insufficient for drawing such conclusions.)

77

JJ, this subject has been explained to FOTH ad nauseum by many others (e.g. here). I am still dumbfounded by his deliberate misrepresentations of Hazlitt’s argument and by his persistently illogical responses.

78

Hello, I am a university student currently studying economics and I apologise if this is a silly question.

I have researched the Broken Window Fallacy and understand how the cost to the community is the broken window and that resulting economic activity is merely a redistribution of income.

The Broken Window must be repaired to avoid further damages which means £500 must be allocated to the replacement of the window. It is stated that the opportunity cost for the baker is a new suit which is implied to cost £500 also. However,

In practise the individual might be a saver and will instead choose to save a high portion of the £500, therefore consumption within a given economy will fall. Does this mean that the damages (or high levels of fiscal expenditure), will in fact have a more credible impact on aggregate demand? Is this a fair critique of the Broken Window Fallacy?

79

Tim, welcome. Yes, capital/wealth can be consumed or saved (for postponed consumption). The proportion of capital consumed vs. saved determines the time structure of production (a uniquely Austrian Econ concept). The more consumption has been postponed, the more capital has been saved to be invested into satisfying said consumption in the future.

Yes, moral/ethical issues aside, by stealing my saved $500 and consuming them in my stead you would definitely have a “more credible impact on [current] aggregate demand” but you would have interefered with the structure of production . The $500 will not be available to be invested towards satisfying future consumption (demand) – in this case, mine.

Along the same lines, Keynesians focus on maintaining and supporting (current) aggregate demand (consumption) at all cost while being completely oblivious to what that does to the structure of production. They foolishly think that fiat money (created ex nihilo) is capital and that increased current consumption (of real resources) would have no impact on savings (i.e. ability to satisfy future consumption demand). When their delusions collide with the hard laws of economics (physics, really) they blame “animal spirits” and roll up their sleves to further boost current “aggregate demand” which inevitably makes things even worse going forward.

80

In practise the individual might be a saver and will instead choose to save a high portion of the £500, therefore consumption within a given economy will fall. Does this mean that the damages (or high levels of fiscal expenditure), will in fact have a more credible impact on aggregate demand? Is this a fair critique of the Broken Window Fallacy?

Yes. The notion that respecting private property “rights” is ipso facto better for the community is ridiculous and dogmatic to the extreme. The reasoning goes something like this:

Why shouldn’t we violate property rights?

Because it makes the community worse off.

Why is the community worse off?

Because property rights have been violated.