Economics Questions

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

Jon Irenicus — Thu, 29 Nov 2012 20:47:42 GMT

Governments forcefully redirect (steal) resources from their owners, and also waste a good deal of the amount they take. If it were merely pure wealth transfers it'd just be theft. The waste that they exhibit is what makes it doubly bad.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

Neodoxy — Thu, 29 Nov 2012 14:44:01 GMT

"1. USSR expanded the quantity of the factors of production with their five-year plans just fine. Production of what?"

Do you deny that the Soviet economy ever grew? The factors have to be increased in such a way that more, or any, of a particular good can be produced.

"2. 'Better' according to whom?"

Either the consumers or a more objective measure in terms of producing the same/a greater quantity of goods using the same quantity of productive factors or cheaper productive factors. This leads to what is known as "efficiency"

"If a tyrant enslaved us all and ordered us -- for the next 20yrs -- to produce machines and tools which we would use to build a giant pyramid as his burial grounds, would our economy be "growing"?"

From the viewpoint of the tyrant; of course it would be.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

Andris Birkmanis — Thu, 29 Nov 2012 14:05:26 GMT

Besides short-term effects (dissatisfied baker), taxation reduces incentive to improve life.

Less saving, less investment, and less entrepreneurship result. Stagnation follows.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

thetabularasa — Thu, 29 Nov 2012 13:54:17 GMT

Andris Birkmanis:

One is redistribution of wealth while the other is destruction of wealth.

Redistribution reduces value for the owners, thus destructs wealth.

But in macro terms, the broken window in the form of wealth being lost is lost only considered a loss to the baker, but not as though wealth in the form of gold were thrown over a cliff, right? Sounds silly to ask it this way, but basically I'm asking how taxes vs. destroyed property affect the growth of the entire economy. The window is only valued by the baker whereas gold is presumably valued by many more people in society. Thus this value differntiation would account for a difference in lost wealth via the broken window vs. taxes since one form of wealth ceases to exist altogether (presuming nobody wants broken glass) whereas the other lost form of wealth via taxes simply redistributes the wealth but doesn't destroy it. In this case, could I make the case that taxes are less harmful to both individuals and society than destroyed property? Or another question would be to question if wealth lost via taxation equals wealth lost via destruction of valued property.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

thetabularasa — Thu, 29 Nov 2012 13:42:50 GMT

z1235:

thetabularasa:

In a macroeconomic sense, though, it seems that taxation has a different effect than a broken window. One is redistribution of wealth while the other is destruction of wealth. Right? This difference has to account for something, I imagine, but I can't place my finger on it.

You are not reading what I wrote twice. Wealth does not (can not) exist without the subjective valuation of its just owner -- it exists in the eye of the owner, so to speak. If the shop owner broke his own window in order to replace it with a better one, or to leave the shop windowless, no wealth has been destroyed. If a thief stole $1000 from the shop owner, wealth has been destroyed. The fact that some window has been broken is not sufficient information to determine if wealth has been destroyed. The fact that the stolen $1000 still exist in someone's hands (i.e. have not been destroyed) is also not sufficient information to determine if wealth has been destroyed.

Presuming the broken window was valued as wealth by the Baker, how does it differ from taxation?

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

z1235 — Thu, 29 Nov 2012 13:33:59 GMT

thetabularasa:

In a macroeconomic sense, though, it seems that taxation has a different effect than a broken window. One is redistribution of wealth while the other is destruction of wealth. Right? This difference has to account for something, I imagine, but I can't place my finger on it.

You are not reading what I wrote twice. Wealth does not (can not) exist without the subjective valuation of its just owner -- it exists in the eye of the owner, so to speak. If the shop owner broke his own window in order to replace it with a better one, or to leave the shop windowless, no wealth has been destroyed. If a thief stole $1000 from the shop owner, wealth has been destroyed. The fact that some window has been broken is not sufficient information to determine if wealth has been destroyed. The fact that the stolen $1000 still exist in someone's hands (i.e. have not been destroyed) is also not sufficient information to determine if wealth has been destroyed.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

Andris Birkmanis — Thu, 29 Nov 2012 13:19:32 GMT

One is redistribution of wealth while the other is destruction of wealth.

Redistribution reduces value for the owners, thus destructs wealth.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

thetabularasa — Thu, 29 Nov 2012 12:37:47 GMT

z1235:

Theft, taxes, and any other type of initiation of aggression are destruction of property. To the extent that property and wealth could be quantified/aggregated, any forceful change of ownership represents destruction of property and a decrease in wealth. Enslaving the builders of the tools/machines needed for the tyrant's pyramid represents destruction of property and decrease in wealth -- the wealth lost by denying the slaves' their ability to satisfy wants of their own.

Property and wealth do not (can not) exist outside the subjective valuations (valued ends) of their legitimate owners.

In a macroeconomic sense, though, it seems that taxation has a different effect than a broken window. One is redistribution of wealth while the other is destruction of wealth. Right? This difference has to account for something, I imagine, but I can't place my finger on it.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

z1235 — Thu, 29 Nov 2012 12:24:38 GMT

Theft, taxes, and any other type of initiation of aggression are destruction of property. To the extent that property and wealth could be quantified/aggregated, any forceful change of ownership represents destruction of property and a decrease in wealth. Enslaving the builders of the tools/machines needed for the tyrant's pyramid represents destruction of property and decrease in wealth -- the wealth lost by denying the slaves' their ability to satisfy wants of their own.

Property and wealth do not (can not) exist outside the subjective valuations (valued ends) of their legitimate owners.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

thetabularasa — Thu, 29 Nov 2012 11:55:31 GMT

Yes, I understand the BWF, perhaps I am looking too literally at it to determine how taxes differ from destruction of property. I suppose that's my question:

How do taxes differ from destruction of property (e.g., a broken window)?

It seems to me that taxes simply delay market development, whereas the broken window both delays market development and requires replacement of the destroyed window, thus costing more in the end.

So my point is that taxes and destroyed property are both theft, but destroyed property is more expensive than mere taxation, so it seems.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

z1235 — Thu, 29 Nov 2012 11:01:33 GMT

Neodoxy,

1. USSR expanded the quantity of the factors of production with their five-year plans just fine. Production of what?

2. "Better" according to whom?

If a tyrant enslaved us all and ordered us -- for the next 20yrs -- to produce machines and tools which we would use to build a giant pyramid as his burial grounds, would our economy be "growing"?

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

Neodoxy — Thu, 29 Nov 2012 04:30:51 GMT

The BWF is a parable which seeks to prove a point. It shows that, when the factors of production are generally employed, that spending cannot increase wealth. If you hire a hundred people to build buildings then that's a hundred people who won't be in other professions. Since the market has a definite tendency to already allocate the productive factors into their most valuable positions, any spending by the government will likely decrease real growth and provision of consumer desire's

You're taking the BWF too literally.

As for how does an economy grow:

1. An expansion in the quantity of the factors of production

2. A better utilization of the factors employed.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

shackleford — Thu, 29 Nov 2012 03:37:24 GMT

http://www.youtube.com/watch?v=dR6ExBQ4ASo

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

fountainhead — Thu, 29 Nov 2012 03:33:57 GMT

How does an economy grow? We get better at producing the stuff we need. We use fewer resources and less time and effort and produce more. The perfect economy would be to have a machine that produces whatever we want at the push of a button, so we can spend less time surviving and more time living.

Re: Broken Window Fallacy, or How Exactly Does an Economy Grow?

z1235 — Thu, 29 Nov 2012 03:33:30 GMT

Economy doesn't "grow" and there is no need for it to "grow". The "need" for (GDP ) "growth" is Keynesian propaganda. There never is an economy of size 10 at time T which then "grows" into an economy of size 11 at time T+1 because no aggregating unit exist by which to do such calculation. Values are subjective and are not amenable to aggregation. The only thing we know as a given is that voluntary actions and interactions increase the satisfaction ("wealth") of everyone involved while initiation of aggression most certainly makes some parties worse off in the short run and pretty much everyone else (but a very small parasitic minority) in the long run. Hence, the only sure way to maximize "wealth" (i.e. increase satisfaction) is by maximizing voluntary interactions and by minimizing initiation of aggression.