I wasn’t re-telling the parable of the broken window. I don’t know where you got that idea.
+1 to xahrx. I haven’t had much time to be here and as I was reading this thread I was starting to get worried that no one was going to step in to demolish this Keynesian Crap 101. Xarhrx spared me the trouble of doing it myself.
The question remains: Who has comandeered Neodoxy’s account?
“So the real question is why should increasing employment be a goal at all when the very nature of the crisis we’re in means that entrepreneurs don’t know what the best allocation of labor, among the other resources at their disposal, is?”
Xahrx, have you been reading this thread? It seems as though you simply restated BWF without refitting it to the entire scenario which has been being discussed here. The only apparently relevant thing you wrote to the discussion was the section I quoted above.
The rest of what you wrote is irrelevant because the point is that the resources including labor are idle. This means that there specifically is no loss of resources or time because of government stimulus. There is no point in periodically nuking a city if, as you say, this will simply cause a loss in production from what otherwise would have been. This is the explanation of the broken window, and it makes sense, and it is true. If there is relatively full employment then the broken window fallacy applies perfectly. If this is absent, if prices and especially wages, are sticky. If these means of production are destined to remain idle, then the fact is that so long as the growth spurred by their spending by the increase in AD yields a greater deal of growth by the time that the economy would have recovered and returned to full employment had the government not taken action, then from a purely material standpoint any amount of destruction would be justified. At any rate the classic example you’re talking about of just digging holes and refilling them is also justified, more so than direct destruction of wealth would be, because it would give people additional income and so then they could spend more. Therefore I feel as though you have improperly diagnosed the entire conundrum addressed here.
Now, back to the quoted section.
This in and of itself doesn’t address any the Keynesian concerns, and indeed in many ways misconceives of the nature of the business cycle. The problem is not necessarily that entrepreneurs don’t know “the best way to allocate resources”, although that certainly can be an issue during the business cycle, rather the main problem, at least in the Keynesian model (and indeed in Austrian models) is that wages are sticky and so they do not adjust. This is discussed to no end in Austrian circles, and rightly so. If a minimum wage rate is higher than the value of what was produced by labor, then that labor will not be employed. Therefore if wages are indeed sticky, as Keynesians claim, then even if entrepreneurs know exactly the most value productive employment for every resource on the planet, then there will still be mass unemployment. This should not be an area of controversy because if we simply assume sticky wages then this is identical to the Austrian model.
Someone who’s simply interested in the truth and increasing the quality of “economic” arguments made on this site.
Way to go xahrx. Finally someone spells it out for all to understand.
Let me see if I understand the counter argument:
Breaking windows is bad, in a vacuum. But when there is mass hoarding, resulting in idle resources and unemployment, we have bigger fish to fry. What’s a few broken windows or nuked cities when we are in the middle of a recession?
You see, if people don’t have a job, giving them any job at all [say digging and undigging ditches], even if accompanied by mass destruction [say breaking windows so someone can fix them], is just what the doctor ordered, and this must be true because it’s Eco 101.
The idea is that if people get money in their pockets, from whatever source, they will spend it [=consumption, eating up, making things disappear]. Once things are gone, they will have to be replaced. So those folks who just sat around not hiring anyone and not making anything will have to get off their butts and end the recession by being productive.
And it’s not their fault really. They wanted to make gizmos galore, but nobody was buying anything, because those with money chose instead to hoard it. And it’s not their fault either, really. They are just a bunch of Spirited Animals who don’t know any better. The paradox of thrift ruined the economy, and the wisdom of spendthrift will save it.
After we pry loose all that money from the tightly closed fist of those silly hoarders, the Fairy Godmother known as the Multiplier Effect will bless our handiwork, and for every dollar taken from the hoarders there will be $1.60 worth of job creation.
That’s Eco 101, apparently, and that’s Neodoxy’s case.
In short:
Root cause: Animal Spirits.
Immediate Cause: Hoarding.
Solution: Taxation and Forced dishoarding.
Trivial side effect: Nuked cities here and there, or just a few broken windows if we are lucky.
The post is getting long. Next one will point out the flaws in the Eco 101 version of reality.
And that is completely wrong because if the resources are idle it’s specifically because no one knows how to use them productively, and giving them something else to do ‘in the meantime’ means losses elsewhere because labor does not work in isolation. People have to employ resources to be productive; time and their own energy at the very least, and capital too if you actually want them to accomplish something other than the functional equivalent of jumping in place. And paying them a wage for unproductive work is not the answer, it’s just a wealth transfer that gives them the balm of assuming they’ve done something to earn their wage when in reality all they did was employ valuable resources better used elsewhere for other things to ‘produce’ something no one can be sure anyone actually wanted.
The recovery is the very process of rediscovering what their productive use is. The stimulus by its very nature stifles that process. You may as well argue that people should be allowed to loot vacant plants because they’re ‘idle’. Just because the value of the equipment inside and the property has yet to be realized doesn’t mean anything is gained by the government using it for something else ‘in the mean time.’ And it is also wrong because as I said we are not talking about some one time stimulus, the reality is continuous polices which presume to know where and how labor should be employed and implies judgements about who knows that information, and the process of enabling that will by nature inherently draw other resources away from more productive uses.
If a stimulus leads to more produce pickers, this inevitably means land that might have been better used for other purposes will remain planted, perhaps with the wrong crops, and new land may in fact be drawn into unproductive use. If stimulus leads to more factory jobs this means capital equipment that would have otherwise been liquidated remains in use, plant that would have otherwise been gutted or repurposed remains in use, and potentially new plant and equipment gets manufactured, diverting materials away from other uses.
That labor is idle does not mean it operates in a vacuum.
That’s alright because I feel you’re completely wrong too. If you’re just a Keynesian then the argument stops here, because there’s a fundamental disagreement we won’t get over which is that spending means absolutely jack. The fundamental point you’re missing is that all idle labor, or idle resources of any type, do not exist in a vacuum: they are idle for a reason. Employing them to some other end by definition means they are diverting resources from more productive uses, and it presumes that somehow that entrepreneurs will magically be aware of this ‘idle’ capacity, which is no loner idle, and know when, where, and how to re employ it when the time comes. But in reality that’s not what happens. These idle resources don’t exist in a magic Keynseian formula where they miraculously only interact with and affect one another, they exist in the real world. And in the real world if decision makers see the government employing tons of ‘idle’ labor to build bridges and damns they won’t say to themselves, “Aha!, the wise and benevolent government has employed those poor souls so I can take my time in figuring out how I may better use them at some point in the future!” No, they say, “Looks like there’s some easy money to be made in goverment contracts; I’m going to get me some…”, and they start diverting resources like steel and concrete and construction equipment etc., and other sectors lose because of this diversion.
Oddly enough, the USSR had tons of idle labor for the government to keep busy, but the entrepreneurs there never found out how to use that capacity profitably right up until the point where the whole system went kerflooey and did fart circles around their economy like a popped balloon. And the reason is because those are two things that can’t happen concurrently because they are mutually exclusive processes. There is no such thing as ‘idle’ labor which can be employed without consequence because to employ it means using resources which may not be idle, or which may have been in use elsewhere. And even if the resources used were idle, this doesn’t mean they were going to remain in that status exactly as long as the labor with which you’ve paired it up.
Prices are only sticky to the extent you subsidize them. ‘Sticky’ is a completely meaningless term in my opinion because it implies a character to prices that they simply don’t have; people have those characteristics and they affect their judgements. If people feel they can get a better price, they’re price will remain ‘sticky’. If the government subsidizes this assumption by making it illegal to hire below a certain price, hard to evict people because of nonpayment of rent or mortgage, hard to fire them because of lawsuits, etc., then this ‘stickiness’ will persist. Prices are the gear ratios that keep the economy moving at a steady pace. They only ‘stick’ to the extent that the government pours sand over them.
I name Xahrx as champion. That’s a lot of win to have all in one place.
+1
Saved me from refuting Eco 101, because he did it better.
Mod Message: Please note that I have edited Neodoxy’s original thread opening post with an edit that he requested be made.
Xahrx,
Do you see what you’ve done?
This thread was made specifically to encourage Austrians to stop using the BWF to attempt to criticize Keynesian economics, because it does not apply within a recession which is exactly the subject area where Keynesian economics originated and is still mainly involved. Throughout the thread I have been critiquing the relevance of the BWF in a recession from a Keynesian perspective. The response which you just gave me was excellent, and delved straight at the heart of Keynesianism, but it had practically nothing to do with the BWF.
These are exactly the kinds of arguments which need to be made against Keynesianism, not the broken window fallacy. We must stop focusing upon it (in relation to recessions) and start focusing upon the real faults of Keynesianism itself.
These are exactly the kinds of arguments which need to be made against Keynesianism, not the broken window fallacy. We must stop focusing upon it (in relation to recessions) and start focusing upon the real faults of Keynesianism itself.
Yes and no. The BWF adds another shovel to dig the grave of Keynesianism. Once we understand that the problem in a recession is previous destruction of resources [aka malinvestment], then the BWF points out that more of the same, more destruction of resources, cannot possibly be the answer.
RobinHood, if you’re going to critique Keynesianism, or indeed anyone’s arguments, then follow Xarhx’s example which you appreciate and do it right.
“You see, if people don’t have a job, giving them any job at all [say digging and undigging ditches], even if accompanied by mass destruction [say breaking windows so someone can fix them], is just what the doctor ordered, and this must be true because it’s Eco 101.”
No, it’s true because of the multiplier effect, because people will spend the money they earn and therefore return the economy back to full employment.
“They are just a bunch of Spirited Animals who don’t know any better.”
-
That’s not animal spirits
-
No, they’re simply individuals who are following their own best self interest. What might be in the best interest of the group might not be what’s in the best interest of individuals.
“Root cause: Animal Spirits.”
That’s the supposed reason for the recession in the first place, but after it has hit it doesn’t matter. From there it’s supposed to be embodied within the liquidity trap.
“Immediate Cause: Hoarding.”
Yes, but this is a major factor in Austrian models too.
“Solution: Taxation and Forced dishoarding.”
Government spending through taxation, a surplus, or money printing
“Trivial side effect: Nuked cities here and there, or just a few broken windows if we are lucky.”
No one would do this in the real world, it’s just an example. IRL it’s more likely to be public works projects.
xahrx, I know everyone (even Neodoxy) is showing a lot of love to your post, but I just got 2 cents to throw in there.
And that is completely wrong because if the resources are idle it’s specifically because no one knows how to use them productively, and giving them something else to do ‘in the meantime’ means losses elsewhere because labor does not work in isolation.
This is NOT how to critique an opposing theory. You have merely pointed out that the Keynesian explaination for business fluctuations is different than the Austrian explaination.
A Keynesian could easily reply “And THAT is completely wrong because if the resources are idle it’s specifically because aggregate demand has fallen in face of sticky prices. And if we don’t give those resources something to do in the mean time we risk entering a deflationary spiral that could rival the great depression!”
And each “argument” is equally valid in the sense that if you grant each person their assumptions, you will reach the same conclusions they reach. But in the end, you may as well be talking to yourself. Because no one will be convinced but the converted. A hollow victory imo.
I mean, I see assertions like this…
The recovery is the very process of rediscovering what their productive use is. The stimulus by its very nature stifles that process.
and I think “sure, if you adopt some of the arguments of Austrian economics that assertion would makes sense. but would anyone that didn’t already agree with you be convinced? Is he even trying to talk to anyone else but the converted?” And then I see sentences like this and I’m convinced you’re not even trying to engage Keynesian arguments…
The fundamental point you’re missing is that all idle labor, or idle resources of any type, do not exist in a vacuum: they are idle for a reason. Employing them to some other end by definitionmeans they are diverting resources from more productive uses,
Come onnnnnn! You are redefining idle mid-paragraph to suit your own argument. According to a Keynesian, if you were diverting a resource from a productive use, it wouldn’t be idle in the first place!
I think it is funny how every thread even mentioning the word “Keynesian” leads to a ABCT v. Keynesian with random posters throwing down strange superlatives like “champion”. Uggg. Why do we even needs “sides” and “champions” and this BS? It’s like it is impossible for some people to just take Keynesian arguments on their own terms without devolving the conversation into “well my model says”.
Anyways, that’s my two cents. Hope you guys found it useful.
Neo, TY for your feedback. I was summarizing your position as I understood it, and am pleased to have your corrections.
I won’t show its flaws, for as you said, xahrx already did an excellent job.
According to a Keynesian, if you were diverting a resource from a productive use, it wouldn’t be idle!
To lable a resource ‘idle’, would a Keynesian have to say that the resources were either a)unowned, or that b)their owners had zero-reservation demand for them?
"I think it is funny how every thread even mentioning the word “Keynesian” leads to a ABCT v. Keynesian with random posters throwing down strange superlatives like “champion”. Uggg. Why do we even needs “sides” and “champions” and this BS? "
Although not really your style:
https://forum.freecapitalists.org/t/the-pursuit-of-truth/23900
“It’s like it is impossible for some people to just take Keynesian arguments on their own terms without devolving the conversation into “well my model says”.”
And I think we both know that’s half of what’s wrong with modern economics.
“Hope you guys found it useful.”
I did.
That’s a nice statement but I completely disagree. The point of the BWF is unseen costs, and that ‘economic activity’ for its own sake isn’t a source of wealth. You are arguing that when resources are ‘idle’ then the unseen costs don’t apply and the fallacy doesn’t apply. I’m saying, and I think have demonstrated to a level acceptable for internet debate, that they do still apply. As I said, ‘idle’ labor doesn’t exist in isolation. It is idle for the very reason that people are unsure of the best way to employ it vis a vi the resources that aren’t idle to achieve greater productivity. Any attempt to bring it into use without affecting non idle resources and leading to the unseen costs of the broken window analogy would mean the means of employing the idle resources would somehow have to be isolated from the rest of the economy so as not to affect prices, judgements, and resouce allocations. This is impossible in the real world, though it may be possible in an equation that describes an imaginary world. You yourself admit this is impossible because the whole point of employing idle resources is so they will spend their wages, which means even if you somehow get the money directly into their hands with no influence on the rest of the economy, they will then be making buying decisions which they otherwise would not have made, and which will affect the rest of the economy. And their wages directly represent a drain on savings which otherwise would have come into existence to fund actual sustainable activity which would have eventually brought the labor out of idleness.
It has everything to do with the BWF because you don’t have to literally break windows or do something similarly and obviously destructive to lead to the unseen costs. In the analogy the shop owner is forced by the actions of a vandal replace the window. All you have to do is substitute the government for the vandal who broke his window in the analogy, and the government doesn’t even have to break his window. It just has to employ ‘idle’ labor to open a textile plant to manufacture environmentally safe stretchwall panels for offices, and suppose the shop owner was a dress maker, and now he has to bid for the same textile resources the plant wants to use…
You can’t employ idle labor without affecting how other resources are being used throughout the economy. You can’t break a window in an idle plant without consequence. Because when someone does buy the plant, he will need to replace it. When someone does liquidate the plant, the glass will be a loss and harder to recycle, or a clean up cost. And when someone does want that idle labor which is no longer idle, it will not be available, or will not be available at the price it would have been.
Again I disagree. The real fault of Keynesianism at its base is it assumes what holds in some ideal fantasy world described by simultaneous equations applies to the real world. You can’t get to the conclusion that ‘idle’ labor can somehow be employed without consequence unless you live on a blackboard where variables can be isolated and solved for, added and subtraced, multiplied and divided. In the real world it’s a simple matter to explain to someone why paying people who are otherwise unemployed to dig and fill holes is a really dumb and even desctructive idea. And the best way to refute Keynesianism is to show that distinction between the real world and the blackboard.
This thread was made specifically to encourage Austrians to stop using the BWF to attempt to criticize Keynesian economics, because it does not apply within a recession
Says who?
Nor is it acceptable to leave out the bulk of the post where I explained the ‘why’ of the statement.
Which excludes the point that I made, again, which is if no one knows what the productive use of that labor is, then it’s most productive use may in fact be to sit there until someone finds out. Idleness does not equal poorly used. Much of the world’s galium was ‘idle’ for millenia, would we have been better off if the govenrments of the world had confiscated it and turned it into gilding for their chairs?
I don’t take a Keynesian on his own terms for the same reason I don’t take Mother Goose on her own terms. Or Aesop. At some level there is either correct and incorrect, or what the hell is the point of arguing? As far as assuming the audience is converts, I don’t care if they are or not. In simple terms I told him I thought he was wrong and the reasons. I don’t think you can get simpler or more appropriate than that. The BWF is appropriate because the whole point is government action is by nature destructive. So yeah, at some level we may come down to fundamental disagreements; you say something is blue, I say it’s grey. It’s up to the audience then to decide who they agree with.
“The point of the BWF is unseen costs, and that ‘economic activity’ for its own sake isn’t a source of wealth. You are arguing that when resources are ‘idle’ then the unseen costs don’t apply and the fallacy doesn’t apply.”
Stop right here, no I am not, I’m arguing that if the Keynesian assumptions are true, then the BWF necessarily doesn’t apply.
“As I said, ‘idle’ labor doesn’t exist in isolation. It is idle for the very reason that people are unsure of the best way to employ it vis a vi the resources that aren’t idle to achieve greater productivity. Any attempt to bring it into use without affecting non idle resources and leading to the unseen costs of the broken window analogy would mean the means of employing the idle resources would somehow have to be isolated from the rest of the economy so as not to affect prices, judgements, and resouce allocations. This is impossible in the real world, though it may be possible in an equation that describes an imaginary world. You yourself admit this is impossible because the whole point of employing idle resources is so they will spend their wages, which means even if you somehow get the money directly into their hands with no influence on the rest of the economy, they will then be making buying decisions which they otherwise would not have made, and which will affect the rest of the economy”
This isn’t the BWF, this is an argument against sticky wages, the long term effects of stimulus upon the production structure, and the impossibility of government omniscience. It is not the BWF. You even admitted my point in the bolded area
“It has everything to do with the BWF because you don’t have to literally break windows or do something similarly and obviously destructive to lead to the unseen costs. In the analogy the shop owner is forced by the actions of a vandal replace the window. All you have to do is substitute the government for the vandal who broke his window in the analogy, and the government doesn’t even have to break his window. It just has to employ ‘idle’ labor to open a textile plant to manufacture environmentally safe stretchwall panels for offices, and suppose the shop owner was a dress maker, and now he has to bid for the same textile resources the plant wants to use…”
Once again, this is the problem of government ignorance, which I already pointed out as being an inherent reason why even someone who is a Keynesian should probably oppose stimulus.
“You can’t employ idle labor without affecting how other resources are being used throughout the economy. You can’t break a window in an idle plant without consequence. Because when someone does buy the plant, he will need to replace it. When someone does liquidate the plant, the glass will be a loss and harder to recycle, or a clean up cost. And when someone does want that idle labor which is no longer idle, it will not be available, or will not be available at the price it would have been.”
This loss would be irrelevant if the Keynesian assumption was true and stimulus would cause the economy to recover.
“The real fault of Keynesianism at its base is it assumes what holds in some ideal fantasy world described by simultaneous equations applies to the real world. You can’t get to the conclusion that ‘idle’ labor can somehow be employed without consequence unless you live on a blackboard where variables can be isolated and solved for, added and subtraced, multiplied and divided. In the real world it’s a simple matter to explain to someone why paying people who are otherwise unemployed to dig and fill holes is a really dumb and even desctructive idea. And the best way to refute Keynesianism is to show that distinction between the real world and the blackboard.”
Once again, not the BWF, rather an argument against government omniscience and the simplification of economic reasoning.
You have not used the idea that if labor was unemployed because consumer spending is not high enough while prices are sticky and will not recover in any reasonable time, that hiring by the state hiring the idle labor and resources, for no valuable long term purpose, in society the recession will cause those people who were hired, who were employed in another activity, to be diverted from the productive to unproductive. In 80 posts no one has done this because it can’t be done, the BWF focuses upon full employment or certain patterns of government spending, not an omniscient government and the Keynesian assumptions.
“Says who?”
In response to what was stated before or after the comma?
If it was after the comma, then says me, Student, and presumably everyone who has stopped posting here, starting with the OP and continuing on to my previous post.
If it was before the comma, then says the creator of this thread.