Seeing as there are not many suitable economic threads in WEPR, I chose to make one. There is a "Broken Window Fallacy," and I don't see anything wrong with the reasoning.
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolationâ""It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's tradeâ"that it encourages that trade to the amount of six francsâ"I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
Please point out the fallacy, because if there is none, then Keynesian Economics is disproven.
Ooh! According to your profile thelistman, you're an anarcho-collectivist. Perfect for the discussion.
According to Keynesian Economics, it should stimulate the economy through government spending. This poem shows the opposite - that government spending is only confined "to that which is seen; it takes no account of that which is not seen." The capital that is used towards government spending could have also been used on another thing.
Thus, you are preventing people from accomplishing what they want through Keynesian economics - you are using their capital which they would have used for their own happiness and are using it for something else, for the government's interest instead of the person who had the capital in the first place. Thus, the seemingly utilitarian system breaks down upon inspection.
The kids break the window. Now the baker has to spend an X amount of money to repair the window.The X money will add to the income of the repair-man, who in addition will spend his extra revenue, which will add to another seller's income, and so forth. The chain of spending will increase, hence the income of a large number of sellers has -seemingly- growth. It -almost- appears that a broken window created some sort of "economic boom".
The fact is though that the broken window did not create any new economical activity. If the baker hadn't spent his money repairing the window, he would have spent it on new sunglasses. Therefore the optician would have new-found earnings for expenditure, etcetera. The broken window simply caused different activity. As the OP said the "theory is confined to that which is seen; it takes no account of that which is not seen".
The question that arises because of the broken window is: a government plan is justified on its merits or by the employment opportunities it will produce? Plus, does the government's interest always coincide with the public's interest?
This story can lead us to fundamental economic questions like, "Why are transactions good?" The answer to this question is that transactions are mutually beneficial trades between two parties - in the "ideal" transactions, both parties are fully informed and both consent. They take advantage of the fact that one party values, say, the pair of sunglasses more than the other party, and will be willing to pay for it. Thus, transactions increase the wealth of the world.
What are prices? They are just mutually beneficial points at which sellers and buyers can agree. There is no "true" price of anything. It is all variable, and it all depends on what parties value. If a person was really hungry, then that person might value a cheeseburger at a much higher price than McDonald's, thus allowing for a mutually beneficial trade to occur.
If you look in the Tavern, there was a thread a while back detailing if someone had 1 law, what would they make it, and people were writing things like, "Give everybody in the world $1000," and I know it was more-or-less a joke, but the truth is that such actions will not increase the wealth of the world because every dollar printed imperceptibly decreases the value of all the other dollars in the world.
Economics is the distribution of limited resources to achieve the greatest good. It is silly to think that one creates good by destroying windows. However, you can extend the thinking to government spending, since people are not doing it by their own choice. Because it is not an entrepreneur that decides to initiate government spending, there is inherent inefficiency, because it is not designed to create profit, thus, not being designed to be mutually beneficial, and thus it is less efficient than the private sector.
So basically, get paid to dig holes so that you can fill them with dirt.
My father pointed this out to me when I was very young, as one of his friends was an economist who told him how to circulate money. Same concept, no?
This creates work as the person who needs to fill the hole gets paid by the person who dug the hole and the person who fills the hole then pays the person who dug the hole to dig it again. It just circulates money. I never really understood how it generates money.
I'm sorry, but I don't understand if the question is to prove that it is possible to circulate money by breaking the window, which it clearly is, or if it is possible to generate money.
So basically, get paid to dig holes so that you can fill them with dirt.
No - it's the opposite.
My father pointed this out to me when I was very young, as one of his friends was an economist who told him how to circulate money. Same concept, no?
No - it's the opposite. That's a fallacy, that this points out.
This creates work as the person who needs to fill the hole gets paid by the person who dug the hole and the person who fills the hole then pays the person who dug the hole to dig it again. It just circulates money. I never really understood how it generates money.
The fallacy is pretty-well explained. This idea ignores that which is not seen. And you don't create money - you create wealth / capital. Really, government spending is an excuse for inefficiency - capital is distributed in an inefficient way, as this points out.
Just clarify what the Broken Window Fallacy is and explain how it differs from the digging holes one.
It doesn't really - the idea that someone being paid to dig holes stimulates the economy is a false one, just as the idea that the boy who broke the window is a benefactor is a false one as well.
Neither truly "stimulates" the economy, because it ignores that which is not seen - perhaps with that person's labor spent digging holes, he could have done something which benefitted more people, whereas digging holes doesn't benefit other people as much.
In the Broken Window story, the fact that the shopkeeper spends his money on a new window doesn't benefit the economy in itself. He could have used the money in a different way, which he would have preferred, had the boy not broken his window, thus resulting in a situation that generates more happiness.
So basically, same concept. It doesn't matter what the insy weensy little details are, but the share the same concept that work is generated, but not income.
So basically, same concept. It doesn't matter what the insy weensy little details are, but the share the same concept that work is generated, but not income.
Not income for the entire nation, and not happiness or an increase in the amount of money times money's value.
