OK, I’ll read it.
OK, I’ll read it.
You have gained my respect.
I have begun reading Economics in One Lesson. I had thought of waiting until I finished all of it before posting something, but I’d like to write down my thoughts before I forget. And it seems the sections are relatively self-contained, so I don’t expect to find a justification for the first lesson in the last one.
The Broken Window
In this section, Hazlitt seeks to show that the “new” economists are primarily focused on the short term to the detriment of the long term. Now, while it certainly seems that Hazlitt thinks that there is a “right” economic policy, he does imply two value-neutral outcomes that will result from the implementation of “his” policy. These things are: (1) there will be more goods in the given society and (2) the majority of the people will prefer this outcome to the alternative. I think it is best from an economic standpoint to look at factors such as these as opposed to saying something like “you shouldn’t break someone’s window because breaking someone’s window is inherently wrong.” The latter is a moral position. While I may have argued against such a moral position in other threads on this board, I have no interest in doing so here. I am interested in an economic theory to the extent that it can explain and predict.
Hazlitt begins with the scenario of someone breaking a baker’s window and ends thusly:
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.
http://steshaw.org/economics-in-one-lesson/chap02p1.html
While this seems reasonable enough at first, I fear that Hazlitt may be falling into the same nearsightedness that he accuses his opponents of. Let me present three scenarios that take the same premises and expand on them with additional details that could possibly be in play.
Scenario 1
Let’s assume that all the characters have the following possessions, abilities, and desires at the beginning of the scenario:
Baker:
- Possessions: 1 window, $250
- Ability: making baked goods
- Desires: 1 suit, money
Glazier:
- Possessions: None
- Ability: making windows
- Desires: 1 suit, money
Tailor:
- Possessions: None
- Ability: making suits
- Desires: baked goods, money
Now let’s look at two possibilities: whether the window is not broken or broken.
Possibility A: No broken window
If the window is not broken, then the baker pays the tailor $250, the tailor makes a suit for the baker, the tailor gives the baker $250, and the baker makes baked goods for the tailor. All desires capable of being fulfilled having been completed, the transactions stop. The gains and losses in possessions can be expressed as follows:
Baker:
- Gains: 1 suit
- Losses: None
Tailor:
- Gains: 1 baked goods
- Losses: None
Glazier:
- Gains: None
- Losses: None
Now let’s look at possibility B.
Possibility B: Broken window
If the window is broken, the baker acquires a desire for a window that supersedes his desire for a suit. The baker gives the glazier $250, the glazier makes a window for the baker, the glazier gives the tailor $250, the tailor makes a suit for the glazier, the tailor gives the baker $250, the baker makes baked goods for the tailor, the baker gives the tailor $250, the tailor makes a suit for the baker. The transaction thus ends, and we are left with the following gains and losses:
Baker:
- Gains: 1 suit
- Losses: $250
Tailor
- Gains: 1 baked goods, $250
- Losses: None
Glazier:
- Gains: 1 suit
- Losses: None
Let’s look at the two predictive claims that Hazlitt makes and compare the outcomes of the two possibilities.
(1) Which possibility produces more goods?
Final goods in possibility A: 1 window, 1 suit, 1 baked goods, $250
Final goods in possibility B: 1 window, 2 suits, 1 baked goods, $250
The only difference is one extra suit in possibility B. So breaking a window produces more goods than not breaking it.
(2) Which possibility would the majority of the people prefer?
Baker: gains 1 suit in both, but loses $250 in B. Prefers Possibility A.
Tailor: gains 1 baked goods in both, but also gains $250 in B. Prefers Possibility B.
Glazier: gains nothing in A, but gains a suit in B. Prefers Possibility B.
Thus, a majority of people prefer the result that breaking a window would produce.
Conclusion: Hazlitt’s prediction is false for Scenario 1.
Scenario 2
The glazier is starving but has no money to buy food. His only skill is to make windows but no one wants windows. The glazier dies of starvation.
Next year, after saving up more money, the baker decides to build a second bakery. The bakery needs 5 windows, but there is no glazier in town to make them. The baker has to hire a glazier from out of town who charges $500 to install each window. If the original window had been broken, the glazier would have lived, the baker would have saved $1000, and no fuel would have been destroyed by the out-of-town glazier traveling from long-distance.
Scenario 3
Suppose the baker had $500. He wants to spend $250 on a suit but has no use for the other $250. If the window is broken, the baker can still buy the suit and nothing less is produced.
While these three scenarios indicate that breaking a window can indeed meet Hazlitt’s two goals, I do not mean to imply that this is always the case. And I suspect that the Keynesians don’t believe that either. Nor do I mean to suggest that breaking the window is the best solution. Stealing the money, for example, would probably require less total work than breaking and remaking the window while achieving the same end result. And, particularly in scenario 2, it might be in the baker’s best interest to simply give the money away.
Let me know if I sum up your argument correctly: If the only village doctor sits unemployed (and is, gasp, about to die of hunger due to lack of income) it may be beneficial to (1) occasionally break someone’s leg/arm, (2) steal goods/money from someone and give them to the hungry doctor, or (3) voluntarily give money to the doctor – so that the village has a (living) doctor available when one may be needed in the future. Or, assuming villagers are short-sighted idiots, an enlightened ruler would be well advised to devise versions of the above schemes for the long-term wellfare of the village.
Have you ever heard of insurance, or how the free market (or peaceful/voluntary exchange of property) allows for the costs of rare, large, future losses to be distributed over long periods of time and/or large sets of agents potentially to be affected by such losses?
Let me know if I sum up your argument correctly: If the only village doctor sits unemployed (and is, gasp, about to die of hunger due to lack of income) it may be beneficial to (1) occasionally break someone’s leg/arm, (2) steal goods/money from someone and give them to the hungry doctor, or (3) voluntarily give money to the doctor – so that the village has a (living) doctor available when one may be needed in the future. Or, assuming villagers are short-sighted idiots, an enlightened ruler would be well advised to devise versions of the above schemes for the long-term wellfare of the village.
If by beneficial, you mean it meets the two criteria that I specified, then yes it might be. To be clear, this does not mean that there aren’t other criteria that might be deemed “more important.” It also does not mean that I necessarily advocate such actions (nor does it mean that I necessarily don’t).
Have you ever heard of insurance, or how the free market (or peaceful/voluntary exchange of property) allows for the costs of rare, large, future losses to be distributed over long periods of time and/or large sets of agents potentially to be affected by such losses?
Yes, I believe that’s also called social welfare in certain cases and is pretty similar to some of the ideas that I discussed. Additionally, the baker could insure his window, which might change the scenario and make it beneficial for him to have it broken.
which might change the scenario and make it beneficial for him to have it broken.
But then the insurance company doesn’t have as much money to invest in other businesses.
The Blessings of Destruction
In this section, Hazlitt takes his broken window analogy and seeks to apply it to the real world. As could be expected, he applies it to the event that evokes the strongest emotional reaction: War. The implication seems to be that if you support Keynesian reasoning, you must support war. I’m not sure what the Keynesian position is exactly, but as my previous response indicated, the breaking of a window doesn’t necessarily lead to a net increase in productivity or a situation that the majority prefers to the alternative. And I’ve indicated that there could be other reasons not to break a window. So let it be clear that my position in no way necessitates the avocation of war.
[The broken-window fallacy ] confused need with demand. The more war destroys, the more it impoverishes, the greater is the postwar need. Indubitably. But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power.
Hazlitt is right in this assertion. War does increase need, but what we call “peace” does not necessarily satisfy existing needs. In the broken window scenario, the glazier had a need for a suit but he didn’t have a demand for one. What breaking the window did was transform his need into a demand. True, it did create a new need for the baker, but this need was also capable of changing into a demand. Ask yourself this: if it’s never necessary to create new needs to satisfy current ones, then why do businesses spend so much on advertising?
But why don’t we assume that Hazlitt is right for a minute. Let’s assume that breaking a window can never create more products or satisfy more people’s desires. What are some more examples we could come up with?
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An office worker works 8 hours a day and spends 30 minutes of that time browsing Facebook. One day, his boss reads a book by John Maynard Keynes and decides to “break” the worker’s “window”–that is, he blocks Facebook from the company computers. Having lost his “window,” the employee decides that he needs to purchase a new “window.” So he buys internet service at his home and now spends the extra 30 minutes at the office working since he has nothing else to do. While it my appear that productivity has increased, we have to remember the money that the worker spends to purchase internet access. We’re forgetting about the tailor. The worker was planning on buying a suit with that money. Now there is one suit that the world will never see as a result of the employer’s naive actions.
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A squatter lives in an old dilapidated house. One day, after having a conversation with a “new” economist, the absentee-owner of the house decides to demolish it to make way for one that he can rent out. While this act may provide jobs for the demolition and construction crews, we are forgetting the squatter. The squatter was going to use his $250 to buy a suit. Now he has to use it to rent the new house. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
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Taggart Transcontinental has built a new super fast railway made of Rearden Metal. No one wants to ride the old Phoenix-Durango Railroad anymore. It’s now in danger of going out of business. In order to prevent the Phoenix-Durango Railroad from “breaking,” the owners have to invest more money to convert the track to the superior Rearden Metal. The owners were planning on spending that money on 10,000 suits. That’s 10,000 suits the world will never see thanks to the reckless actions of Taggart Transcontinental.
Always remember what James Taggart … I mean Henry Hazlitt says: What is harmful or disastrous to an individual must be equally harmful or disastrous to the collection of individuals that make up a nation.
But then the insurance company doesn’t have as much money to invest in other businesses.
So the insurance company pays the glazier $250 to replace the window. You’re right. The insurance company no longer has $250 to invest in other businesses. BUT the glazier now has $250 to invest in other businesses. So the total amount of investible money has not decreased.
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It’s not the worker’s window. The computer and the worker’s time during working hours belong to the employer. Far from breaking a window, he was saving his own window from being broken, by preventing the worker from stealing from him.
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Same mistakeas in 1. Also same mistake as in 3.
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Let us not confuse destruction with investment. Destruction means just that, destruction. Destruction does not increase the supply of goods and services that existed before the destruction; by definition, it decreases them. The railroads have increased the supply by replacing the inferior metal with the superior metal. Same thing in 2.
- It’s not the worker’s window. The computer and the worker’s time during working hours belong to the employer. Far from breaking a window, he was saving his own window from being broken, by preventing the worker from stealing from him.
I am measuring whether an action can meet two criteria: (1) Increase the number of products in the economy; and (2) produce a situation that is preferable for the majority of people than the alternative.
Can you explain why who owns what matters in meeting these two criteria? Wouldn’t the effect have been the same if the baker had broken his own window? Would Hazlitt have said it would have be a good idea for the baker to break his own window?
- Let us not confuse destruction with investment. Destruction means just that, destruction. Destruction does not increase the supply of goods and services that existed before the destruction; by definition, it decreases them. The railroads have increased the supply by replacing the inferior metal with the superior metal. Same thing in 2.
Well my Scenario 1 increased the supply of goods. Therefore, breaking a window can be a form of investment by your definition.
“More important” to whom? The one’s whose arms and legs had to be broken, perchance?
I said “peaceful/voluntary exchange of property”. Social welfare and breaking inocent people’s windows, arms and/or legs has absolutely nothing to do with it. Finally, if more broken windows, arms, and legs do end up being more “beneficial” in some sick, perverted, sociopathic way, wouldn’t that imply that an utter destruction of this planet would bring “benefits” of orgasmic proportions? Reductio ad absurdum, much?
So the total amount of investible money has not decreased.
But you’re down one perfectly good window. So it does seem like the total amount of usable goods in the economy has decreased while money went from one guy to another.
who owns what matters because nothing was actually broken in your facebook story. you called denial of access to facebook a breaking. I pointed out that it is a repair, preventing theft.
again, nothing was broken in 1. the computer still exists. all that happened is that the employer put a stop to theft.
it’s good to see someone reading a book with an open mind and a spirit of humility.
More products, in and of itself, does not translate into more wealth. Stealing $2billion from Bill Gates and paying 20,000 artists to make silly wood-carved figurines that no one wants does not increase wealth.
One surly Bill Gates, 20,000 happily employed wood-carvers, and 20,000 figurines does not make the world a wealthier place, even though 20,000 > 1. Value is only subjective, which makes it impossible to aggregate into an objective quantifiable measure.
“More important” to whom? The one’s whose arms and legs had to be broken, perchance?
For example, one might consider it unethical to break someone’s window. One might say it’s more important to uphold morality than it is to increase productivity or overall utility.
I said “peaceful/voluntary exchange of property”. Social welfare and breaking inocent people’s windows, arms and/or legs has absolutely nothing to do with it.
If all the participants sign a “social contract” giving someone the right to break windows/legs when he thinks it’s to the community’s best interest, then it could be voluntary (again, I’m not advocating this per se).
Finally, if more broken windows, arms, and legs do end up being more “beneficial” in some sick, perverted, sociopathic way, wouldn’t that imply that an utter destruction of this planet would bring “benefits” of orgasmic proportions? Reductio ad absurdum, much?
If eating some food right now is beneficial to me, does that mean eating all of the food in the world will bring me even greater benefits? You reasoning doesn’t make sense.
BTW, do you think if someone had killed Hitler that it might’ve benefited humanity in some way? If you do, then you believe in a variant of the broken window fallacy.
BTW, do you think if someone had killed Hitler that it might’ve benefited humanity in some way? If you do, then you believe in a variant of the broken window fallacy.
How so? It decreases war, eliminating broken window.
But you’re down one perfectly good window. So it does seem like the total amount of usable goods in the economy has decreased while money went from one guy to another.
But you’re thinking in the short term, which is what Hazlitt condemns the Keynesians of doing. There will be a new window. So they have not really lost a window.
FOTH, value is subjective. Ponder. Give it time to simmer. Your inability to distinguish between (1) valuation of things for yourself (eating vs, overeating) and (2) valuation of things in someone else’s stead (destroying just enough of other people’s limbs and property, but not more than that) is bordering on sociopathic.
who owns what matters because nothing was actually broken in your facebook story. you called denial of access to facebook a breaking. I pointed out that it is a repair, preventing theft.
OK, let’s change the ownership then and see if things change. The office and computer belong to the employee, he’s the only worker. The worker/owner decides to block Facebook on his office computer. Now he has to buy it at home. Has that changed the outcome?
again, nothing was broken in 1. the computer still exists. all that happened is that the employer put a stop to theft.
OK, but something was definitely broken in 2. Are you saying the results for the community as whole would be different if (a) the squatter’s home was destroyed by the owner, or (b) the “squatter” owned it but someone else came along, demolished it, built a new one, and forced the “squatter” to pay rent. It seems to me that both scenarios are equally harmful to the squatter and equally beneficial to the owner/builder.
it’s good to see someone reading a book with an open mind and a spirit of humility.
Likewise the people reading my posts.
A new window which was not needed. A window which took time out of the broken window guy’s life which he could have spent writing a book, fixing his house, living with his family (and there is no “new life” for him). A new window which created an artificial need for new window fixers who waste time learning how to fix windows which are not really needed.