13 thoughts on “Why We Believed Krugman Wrote It”

  1. I’ve long thought that Bastiat’s “Broken Window” scenario is related to what I call “the Magic Dollar” theory. Statists apparently seem to think that if they take money away from the people who earned it, and then have the State redistribute it, those dollars now have acquired some magical power to generate the growth of businesses and jobs that the same dollars wouldn’t have possessed before the confiscation and redistribution.

  3. When “Cash For Clunkers” was initiated, I said to myself, “Self, I wonder if anyone else realizes that this is another manifestation of the ‘Broken Window Fallacy’ .”

    So, I checked on Google, and I was only the 90 millionth person to make the connection.

    —Tom Nally, New Orleans

  4. The broken windows fallacy makes a totally awesome point if you are fundamentally confused on the difference between wealth and economic activity. Otherwise it is a pretty irrelevant point.

    What is seen: the broken window and the 6 fr. expenditure related to it has to have happened before what is not seen the hypothetical purchase of the 6 fr. shoes/suit/Xbox. Therefore, by definition, there is a higher rate of economic activity. It might not be morally acceptable or whatever, but GDP growth, again by definition (unless one has recalled causality), is faster in the broken window universe – and that is all that is argued when discussing stimulus. The wealth issue is just a strawman (well, the whole argument is a straw man, as no one suggests smashing windows, having a war or natural disaster for the purpose of economic stimulus. Krugman would have been a lot happier if FDR had not have listened to folks wielding Bastiat style arguments in 1937, instead of having to wait for the intervention of Pearl Harbor).

    Of course the other issue is the relevance of the larger economic context – the baker is not likely to make his hypothetical purchase in a deflating economy – but I have typed too long.

  5. More activity != growth, Duncan. Growth only happens if capital formation is possible and wealth can be safely accumulated. If those can’t happen, you live in Haiti.

  6. Duncan, if a single broken shop window grows GDP marginally, should we not continue to break shop windows until we double GDP?

    In order to inconvenience the fewest number of people, perhaps we can simply continue breaking the same window over and over until GDP is doubled. That way, only one person is inconvenienced instead of multiple shop owners.

    But actually, why should we inconvenience the shop owner? Why don’t we have the glazer simply dig holes, then fill them up? That way, the glazer still gets his money, but the shop owner doesn’t suffer the inconvenience of a broken window.

    But wait! Continuous digging risks injury, and risks the glazer’s opportunity to work productively on other projects. Rather than asking him to dig holes, why don’t we just give him the money?

    That’s it! Let’s continue transferring the community’s money to the glazer until GDP is doubled.

    —Tom Nally, New Orleans

  7. It might not be morally acceptable or whatever, but GDP growth, again by definition (unless one has recalled causality), is faster in the broken window universe

    Nice try, but you just conflated growth and GDP growth, which is equivalent to conflating wealth with money. You are completely wrong to call wealth the straw man. Wealth is the basic unit, money is the measure. Your argument is equivalent to saying that a car is going faster when the speedometer is in kph rather than mph, because the numbers are going up faster.

    As for the ol’ WWII ended the depression argument, sure it did. But I doubt it had anything to do with the fact that the government started printing money to make things that got promptly destroyed. The typical civilian in the US was no better off during the war than before it, what with rationing, war taxation, and profligate spending on war bonds. Certainly, the GI on the ground was not better off during the war. It wasn’t until after the war that things really started to turn around. Wartime stimulus probably helped a little, but not because it primed the pump. It has more to do with the fact that people pressed into labor during the war came out with skills and businesses had invested heavily in infrastructure; those are things that create wealth. Obama’s “stimulus” of welfare checks would be the counter-example. It also helped that our industrial base was barely touched while our competitors in Europe and Japan were decimated. Take a look at how good the economy was in France, Germany, Russia, or Great Britain in 1948 before regurgitating this Keynesian tripe you learned in macroecononomics 101 again.

  8. Yea Roga, U.S. Steel in particular profited the most in the post-war era to become the worlds leading steel producer. Most of all the worlds major steelworks had been destroyed as a direct result of the war. U.S. Steel used this to its advantage all the way until 1953 where it was employing nearly 350,000 people and producing some 35 million tons of steel in a single year. Then, the unions came along….

  9. You could argue that broken windows do stimulate the glazier. Of course it hurts the baker but he produces food that makes people fat, so it is ok if he gets hurt. The glazier is a noble profession that deserves the stimulus more than the baker deserves his money.

    The glazier makes windows that lower energy costs for the homeowner and help protect the environment from global warming.

    It seems that stimulus spending is about supporting certain groups and there is a planned synergy between the voting habits of those groups and the party that implemented the stimulus spending.

    There are also value judgements about what profession is good and noble and what profession is evil.

  10. “the whole argument is a straw man, as no one suggests smashing windows, having a war or natural disaster for the purpose of economic stimulus”

    Except Krugman is arguing for just that.

  11. It seems that stimulus spending is about supporting certain groups and there is a planned synergy between the voting habits of those groups and the party that implemented the stimulus spending.

    The shorter version of this is “He who robs Peter to pay Paul can always count on the support of Paul.”

  12. Roga Says:
    August 25th, 2011 at 7:47 am

    “Wealth is the basic unit, money is the measure.”

    Money is the medium. It’s like all that hype about hydrogen fuel cells a few years back. That lasted until enough people realized the hydrogen was only a medium for energy transmission, not a source.

    “It has more to do with the fact that people pressed into labor during the war came out with skills and businesses had invested heavily in infrastructure; those are things that create wealth.”

    It had more to do with the fact that the most onerous, business destroying provisions of the New Deal were suspended for the war effort, and Truman’s attempts to reinstitute them afterwards in the Fail Deal largely withered on the vine due to Republican opposition.

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