General

Re: The broken window fallacy does not always hold true (Debate Case)

JackCuyler — Thu, 08 Nov 2012 19:22:25 GMT

Yes, the equation is correct. Total Spending does equal Total Income. But Total Income is not a measure of Total Wealth, obviously. For example, if I make $30,000 a year selling all I own, my Total Income is 30 thou, but I am not any better off.

Actually you are better off, ex-ante, or you would not have made the sale.

Re: The broken window fallacy does not always hold true (Debate Case)

Smiling Dave — Thu, 08 Nov 2012 04:10:15 GMT

Dang, had to revise the article.

Re: The broken window fallacy does not always hold true (Debate Case)

cporter — Tue, 06 Nov 2012 20:31:37 GMT

If I could name two things that are most responsible for confused theories, it would be these: measuring economics in money, and ignoring time.

The broken window fallacy has nothing to do with the shuffling of money. The point is that there has been a net reduction in the stock of goods, so that now work must be replicated. If work must be replicated just to get us back to where we were before then we are worse off. The fact that you can dip into part of your stock of goods (money) to trade for a replacement window doesn't mean there was no reduction in the stock of goods.

The argument defeats itself here:

Austen:
The person with a broken window could have just saved his money, thus producing no real economic effects

A counter-argument is that the person with the broken window instead of spending his/her money on the window, would have spent the money on other goods/services, thus the broken window is a net-harm. However, this ignores the fact that the person could have just saved his/her money instead, which would produce no economic benefit at all.

If saving your money produces no economic benefit, where does the money come from to replace the broken window? Of course, it came from past savings, and is now being put to use in exchange. If he had no savings he wouldn't be able to do that.

Wealth is measured by what we have, not what we must work to obtain in the future. Break windows, reduce wealth. Simple as that.

Re: The broken window fallacy does not always hold true (Debate Case)

cab21 — Tue, 06 Nov 2012 20:05:43 GMT

so a storage unit would be better than a bank( which has a storage unit, it just loans money out with the gold in storage to back up whatever it loans)?

invest and store seems better than store without investing.

Re: The broken window fallacy does not always hold true (Debate Case)

QuisCustodiet — Tue, 06 Nov 2012 19:17:01 GMT

Bob Murphy took this question head-on, even quoting Krugman writing almost exactly what you wrote in your first paragraph. I hope you'll check it out: http://mises.org/daily/3155

Re: The broken window fallacy does not always hold true (Debate Case)

Smiling Dave — Tue, 06 Nov 2012 19:05:06 GMT

Slightly revised version of the above post right here:

http://smilingdavesblog.wordpress.com/2012/11/06/hurricane-sandy-and-good-ole-mvpq-have-we-broken-enough-windows-to-end-the-recession/

Re: The broken window fallacy does not always hold true (Debate Case)

Smiling Dave — Tue, 06 Nov 2012 17:28:20 GMT

I don't understand the question, nor your comment on it.

TS=TI is talking about the past. The total amount spent in the past, choosing whatever length of time you wish, is equal to the total amount other people got in their hands from the spenders. I think this is irrefutable. Spending involves, by definition, giving someone else money.

If, in that time interval, someone had money he did not spend, it appears on neither side of that equation.

As I mentioned in an earlier post, the problem with the equation is the absurd conclusions people draw from it.

Re: The broken window fallacy does not always hold true (Debate Case)

Bogart — Tue, 06 Nov 2012 16:50:44 GMT

what storekeeper saves money under his bed rather than investing money in the economy?

The correct answer is that under a hard money system this activity is savings and is good for the economy. WIth a limited supply of money, any storage of money, even money that is not "invested" only makes the purchasing power of the remaining money higher and makes holders of the remaining money wealthier.

The problem is that the hoarder of money HAS NO CHANCE of impacting anything against the incredible evil that is the central bank where they can create billions by entering digits into a computer terminal.

Re: The broken window fallacy does not always hold true (Debate Case)

Wheylous — Tue, 06 Nov 2012 16:31:16 GMT

Austen - look at the empirical studies of the government multiplier:

http://bastiat.mises.org/2012/11/fiscal-stimulus-or-fiscal-depressant/

Crowding out occurs. Why? Becuase government is not able to specifically target idle resources.

Re: The broken window fallacy does not always hold true (Debate Case)

Neodoxy — Tue, 06 Nov 2012 16:13:39 GMT

"Regarding the equation Total Spending = Total Income, what about when people decide to save part of their income rather than spend it? I think that equation basically ignores the time dimension."

The equation is necessarily true. Everything that someone spends is someone else's income. While you're right that it only works if we pick one "time period" the fact is that if I section off any time period, be it a year or ten days, that every penny spent by one person will be another person's income because you cannot receive new money without someone giving it to you.

Therefore if people decides to save their money rather than spend it then spending goes down, as does income. It's arbitrary at what point you set the time limit, but the equation does include savings.

Phi est aureum,

I find that both of your examples perform conflation which, on their face look helpful but which, on further examination are not.

Now let's take your first example under a Keynesian nightmare world. Let's say that unemployment is at 99.99%, most people are starving and destitute and that the economy will not equilibrate for another 2 centuries. Under this drastic, overboard situation, then, if the Keynesian assumption is correct, then these drastic overboard methods could actually make people better off, instead of 2 centuries of abject poverty you'd have mass production to rebuild everything, which, even if it takes more time, will still make people better off in the intermediate term... This situation also works a lot better if you don't destroy the means of production.

The fact is that most Keynesians don't advocate anything like this. They want to do things which they believe create and raise productivity, like infrastructure.

As for your second point, it doesn't apply at all because the reasons why Keynesians think what they do is twofold. First, they believe that knowledge of future consumption generally leads to production, which it usually does, but it doesn't if you're buying the same car back and forth. Second they believe that most money will be spent on people buying what they want to buy. Spending is to increase employment so that then the employed can buy what they want, not so that they can buy what they don't need.

We have to attack the heart of Keynesianism; the idea of idle resources and sticky prices.

Re: The broken window fallacy does not always hold true (Debate Case)

Autolykos — Tue, 06 Nov 2012 15:42:15 GMT

I had asked a general question. Surely you saw it. So it baffles me why you chose to ignore that question and instead insinuate that my post wasn't at all worth responding to in a straightforward manner. As you well know, my avatar is entirely irrelevant to the content of my post.

Re: The broken window fallacy does not always hold true (Debate Case)

Smiling Dave — Tue, 06 Nov 2012 15:31:27 GMT

Did you as me something? Will gladly answer. And I am not dismissive of you in the least, quite the contrary.

Re: The broken window fallacy does not always hold true (Debate Case)

Autolykos — Tue, 06 Nov 2012 14:52:05 GMT

Smiling Dave:
Auto,

I liked your old avatar more. Lent weight to your posts.

Apparently you're afraid to respond to me in a serious, non-dismissive manner.

Re: The broken window fallacy does not always hold true (Debate Case)

Jon Irenicus — Tue, 06 Nov 2012 14:39:12 GMT

However, this ignores the fact that the person could have just saved his/her money instead, which would produce no economic benefit at all.

In what world? I'm a little worried - do they teach this on "economics" degrees?

And as for the "empirical evidence" canard, try this and this.

MV=PQ isn't going to take you very far until you realise the meaning of the terms behind it. And no, the existence of a recession is irrelevant to whether or not the BWF is applicable. If you simply want more "economic activity", give everyone a spoon with which to dig ditches and pay them for it, and watch GDP skyrocket.

Re: The broken window fallacy does not always hold true (Debate Case)

Smiling Dave — Tue, 06 Nov 2012 14:36:55 GMT

Auto,

I liked your old avatar more. Lent weight to your posts.