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Discussing with a Keynesian -broken window fallacy..need some help!

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Heather posted on Thu, Oct 20 2011 1:14 PM

I just fresh signed up with this site and happen to currently be in a discussion with a guy at work who i will call "Mark". I sent him an email containing Lew Rockwell's article on where he talks about the broken window fallacy. http://www.lewrockwell.com/rockwell/broken-window.html

The following is Mark's response to the article.

OK so I have read the article on the Broken Window Fallacy and here is my critique. I will agree that government spending after disasters does not act as an economic stimulus (via the money multiplier) to those that have suffered a true loss (like a flooded house.) However,  there is a whole segment of companies that do find a way to profit from a natural disaster without suffering an economic loss. Think Home Depot and the extra plywood sales they make. That is true economic stimulus via the money multiplier.  In other works the Broken Window Fallacy only explains one side of the economic equation. Those that suffered a loss.   

 Economic activity is just too complicated to be explained by simple theories and laws.

 Economic activity is so complicated that even the best minds in economics get it wrong all the time.

 Economics attempts to explain or predict human behavior and no one will  ever come up with a formula or theory that correctly predicts human behavior. Impossible! We are irrational creatures.   

If all economists were laid end to end, they would not reach a conclusion.

 

Like i mentioned earlier, i'm pretty new to all of this, but i really want to help enlighten this guy. How do i go about this one?

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Heather Malin:
No one is really a complete lost cause. I can still do this. I managed to introduce his son to libertarianism and he warmed up to it. Maybe i should buy him a book. Any suggestions on the best one for me to get Mark?

Well yeah, I mean anyone who doesn't have some kind of mental disability can learn something...my point was it all depends on how much time you're willing to dedicate and how much you're willing to put up with.  There's opportunity costs to everything, and like I said, if your goal was to simply educate people, there are ways to be much more effective. 

I was talking to someone else in this thread, lining out best practices for debating people and used the analogy of the gold coin room:

Suppose someone took you and a large group of people into a room with gold coins all over the floor, and told the group you all had 15 seconds to pick up as many as you could...but some of them were glued down.  When he says "go" you're not going to sit there and pick at a glued one...you're going to test it, and if it doesn't budge, you move on.  You'll have much more success that way.

Granted, not all people are the same (unlike gold coins), and you may have a personal investment in some people...as in, it may be important to you that a relative or close friend (like "Mark") be persuaded.  So it will have to be up to you to determine how much time you're willing to invest in picking at that glue.  You just have to remember why you're doing it, why it's important to you, and that there are always opportunity costs...as in, if your real goal is persuading people and spreading the ideas of liberty, you can be much more successful at that by not spending as much time with the ones that are glued down so tightly.  Just keep in mind that every 10 minues you spend fighting windmills with one person. you could probably be actually persuading 10 people who actually want to hear your message.  Who deserves to hear it more?  Those who are willing to listen, or those whom you decide need to hear it?

But yes, I actually do think Economics in One Lesson is probably the best book for someone like Mark.  Perhaps even What Ever Happened to Penny Candy?.  It's definitely geared toward a younger audience, but as you can see from this quick anecdote, anyone can benefit.

 

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Perhaps I am a bit too excited about this, but this might help:

The Forgotten Depression of 1920

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Yeah, I'd say you are.  If I'd have known you weren't aware I'd have informed you a long time ago.  wink

 

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Heather Malin:

No one is really a complete lost cause. I can still do this. I managed to introduce his son to libertarianism and he warmed up to it. Maybe i should buy him a book. Any suggestions on the best one for me to get Mark?

He doesn't want to be shown up by you. Why? **shrugs shoulders** Age, gender roles, education, etc.

As John James said suggested, you gotta figure out what your goal is with him. I would have pointed out all of the fallacies at the beginning, which probably would have frustrated him to the point of quitting or name calling. But at least it would have shown that he is closed-minded.

To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process.
Rabbi Lapin: "Let's make bricks!"
Stephan Kinsella: "Say you and I both want to make a German chocolate cake."

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Hm, Muffin might be on to something. Perhaps if you save your strongest arguments for somewhere in the middle, they will be more convinving. Because usually, debates go like this:

Side 1_________________ |___________ Side 2

Strong argument A ________| Strong counter B. Argument C

Strong counter D , weak arg E| Weak F

Weak G _________________| Weak H

-> Minutia  where people just quit ...................................

 

The details are where people get lost. If you can be very strong when discussing the details, it might increase your chances of success.

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Took the advice with moving on to easier coins. Great advice. I flawlessly got a few people today that will be extremely valuable to have on our side. I  realized a way to talk to co-workers about it without sounding like your pushing it on them. I do this by creating a situation where they bring it up first.

It's a 40 minute boat ride home so I like to just read different libertarian or austrian books while waiting. They ask what i'm reading, and I tell them all about it. Two of the gentlemen I talked to asked if I could lend them a book.  ..Though it could partially be do to their curiosity of how someone can get so passionately excited when talking about a book on economics. Either way it's a start.

Basically always carry around a book. People are always curious about what others are reading, especially when they see it's not Twilight. Makes for an easy way to more naturally flow into a political conversation. 

 

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Heather Malin:

Took the advice with moving on to easier coins. Great advice. I flawlessly got a few people today that will be extremely valuable to have on our side. I  realized a way to talk to co-workers about it without sounding like your pushing it on them. I do this by creating a situation where they bring it up first.

It's a 40 minute boat ride home so I like to just read different libertarian or austrian books while waiting. They ask what i'm reading, and i tell them all about it. Two of the gentlemen I talked to asked if I could lend them a book.  ..Though it could partially be do to their curiosity of how someone can get so passionately excited when talking about a book on economics. Either way it's a start.

Basically always carry around a book, people are always curious about what others are reading, especially when they see it's not Twilight. Makes for an easy way to more naturally flow into a political conversation. 

That's awesome.  It's quite an interesting situation where you're commuting with people you know every day like that.  That's a very unique opportunity of a captive audience you have there.  Great to see you're able to take advantage of it.

The book thing is a classic strategy.  Never gets old.  (That's one reason to be thankful for all the great LvMI covers ;) ) Be sure to check the reading lists for suggestions on titles.  (My work-in-progress of listing by difficulty is here)

 

especially when they see it's not Twilight

 

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My cousin considers himself a pragmatist (aka liberal) but he recently said to me "hey, I found this really cool book online called Economics in One Lesson." I was like yessssss.....

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Note that the "scenario" is inherently flawed from an Austrian PoV since no one except a coin/currency collector desires money (not even a miser desires money, he just has really, really low time preference and this evinces itself in the size of his bank accounts).

Clayton -

That's an interesting perspective. I'd like to learn more about it sometime. Is that kind of like the difference between use-value and exchange-value--i.e. the only use of money is getting rid of it? Still I find it hard to say that "no one except a coin/currency collector desires money." Maybe you misunderstood what I meant by "desire" (or just wanted to educate me about the finer points of AE, which is OK).

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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John James

You mean in your single iteration scenario in which there exist only 3 people, all of whom only desire 1 thing, (two of whom's desire is something they can't even eat), and once they get that one thing, all human desire will be satisfied, leading to no further human action for all eternity.  Yes, this is a very great analogy.

Well certainly I chose to cut it off at an arbitrary point, but so did Hazlitt, did he not? I don't see how one can draw conclusions about universal economic laws from his scenario anymore than they can from mine. Why do you think his scenario is such a great analogy? How does it overcome the faults that are in mine?

Why not?  What's different?  A broken window is a broken window, is it not?  What makes one situation different from another?  Why would there be stimulus in one situation and not in another?  Please explain.

Oh? You mean that if the baker had broken his own window on purpose to put in a new one it would have the same negative effects as if a vandal had broken it? A broken window is a broken window!

Surely the effect will depend on what sort of action breaking the window will promote or allow for. This differs from situation to situation.

That's completely irrelevant.  The government could easily order everyone out of town so that the city might be bombed to improve the overall economy.  Just like evacuating for a hurricane.  Why is this not done?

First of all, I find it amusing how you imply that the government always takes the correct action to improve the overall economy. But more to the point, destroying everyone's property will not meet the two criteria in the same way. In my scenario, only a minority loses property (or utility or whatever). His losses are in effect redistributed to the majority. If city A is magnificently rich, and cities B and C are completely poor and unemployed, then destroying city A may indeed improve the standard of living of cities B and C. But destroying city A would not help lead to the fulfillment of the two criteria within city A--unless we hypothesize completely different factors (e.g. the houses could be contaminated by disease).

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Autolykos: Surely you know that that wasn't my point. My point was that your hypothetical example - specifically your "Scenario 2" - is used to present a "counter-argument" that is nevertheless fallacious, as it clearly embodies the nirvana fallacy. Your other scenarios also seem to embody it, but more subtly, as they also involve conditions under which, by some arbitrary rubric (which you implicitly change from one scenario to another), the "best" outcome is not reached without breaking the window.

Do you think Hazlitt avoids the nirvana fallacy in his scenario? Is his rubric arbitrary?

You must understand that I am not trying to argue for some universal economic law based on my scenarios. Quite the contrary, I'm trying to dispel such a notion. If one puts up an arbitrary scenario to prove a universal point, then all I have to do is put up one contrary scenario to disprove that point. If Hazlitt wants to make an inductive argument--that is, that breaking a window has such and such effects most of the time--then it is up to him to present evidence in support of such a position. A singular, hypothetical example just won't cut it for me.  However, a singular, hypothetical example is all that's needed to disprove his deductive reasoning.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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A month later?

 

Fool on the Hill:
Well certainly I chose to cut it off at an arbitrary point, but so did Hazlitt, did he not?

No he didn't.  Hazlitt didn't cut anything off.  It is only your scenario that each member of the entire human population has only one desire each, and once that single desire is fulfilled, human action has no reason to continue.

You might as well be talking about scenarios in which A might not equal A.

 

Oh? You mean that if the baker had broken his own window on purpose to put in a new one it would have the same negative effects as if a vandal had broken it?

Um.  Yes?

 

Surely the effect will depend on what sort of action breaking the window will promote or allow for.

You're going to have to elaborate on this.  Perhaps an example or two of some circumstances in which the same thing results in different outcomes.

 

In my scenario, only a minority loses property (or utility or whatever). His losses are in effect redistributed to the majority. If city A is magnificently rich, and cities B and C are completely poor and unemployed, then destroying city A may indeed improve the standard of living of cities B and C. But destroying city A would not help lead to the fulfillment of the two criteria within city A--unless we hypothesize completely different factors (e.g. the houses could be contaminated by disease).

Where do the gains come in?  You destroyed one guy's stuff...and somehow socialized those losses to everyone (how you did this, I have no idea.  Perhaps a tax-and-bailout scheme, I don't know).  But somehow, you "redistributed" the losses to the majority.  So it's not just the man who has lost, everyone has lost.  Either way, whether the man suffers his losses on his own, or he gets bailed out, please explain how any of this loss makes the overall economy better off.

 

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No he didn't.  Hazlitt didn't cut anything off.  It is only your scenario that each member of the entire human population has only one desire each, and once that single desire is fulfilled, human action has no reason to continue.

You might as well be talking about scenarios in which A might not equal A.

Yes, he did. He said that one suit would not be produced because the baker had to spend the money on a new window. How does he know that the glazier (or someone farther down the line) won't spend the same money on the suit? To say that one suit won't be produced is to only say that one suit won't be produced in a given period of time.

I could multiply the number of each person's desires by 100, the timeframe by 100, and the number of people by 100--and I bet I could still come up with a scenario with the same outcome. But really, would that satisfy you anymore than the simplified one that I presented?

You're going to have to elaborate on this.  Perhaps an example or two of some circumstances in which the same thing results in different outcomes.

The baker's window has a crack in it, making the store appear run down and scaring off customers. The baker breaks the window and hires the glazier to put in a new one. The baker's business increases as a result of the improvement. The breaking of the window in this case makes both the baker and the glazier better off. Whereas in Hazlitt's scenario, only the glazier is better off--the baker is worse off.

Where do the gains come in?  You destroyed one guy's stuff...and somehow socialized those losses to everyone (how you did this, I have no idea.  Perhaps a tax-and-bailout scheme, I don't know).  But somehow, you "redistributed" the losses to the majority.  So it's not just the man who has lost, everyone has lost.  Either way, whether the man suffers his losses on his own, or he gets bailed out, please explain how any of this loss makes the overall economy better off.

Maybe I wasn't clear. His losses are others' gains. There's no bailout. Rather it is more akin to a redistribution of wealth from the rich to the poor. Imagine a town of 1000 people. One of those people is a jeweler with a window display containing 999 diamond rings. One person breaks the window, takes the rings, and distributes one to each person in town. This meets one of my criteria of evaluation--one person loses and 999 gain. Now whether it can be said that this "makes the overall economy better off" is not something I have addressed. I'm not sure what that even means.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Fool on the Hill:
He said that one suit would not be produced because the baker had to spend the money on a new window. How does he know that the glazier (or someone farther down the line) won't spend the same money on the suit?

Because resources that were consumed to replace a window cannot be used for something else.  See here.

 

The baker's window has a crack in it, making the store appear run down and scaring off customers. The baker breaks the window and hires the glazier to put in a new one. The baker's business increases as a result of the improvement. The breaking of the window in this case makes both the baker and the glazier better off. Whereas in Hazlitt's scenario, only the glazier is better off--the baker is worse off.

The baker needs to break his window before he can replace it?  I've never heard of that in my life.  The window could quite possibly be repaired for a lessor cost, but even if couldn't, it could certainly be replaced without taking the effort to break it, and creating a mess to clean up...thus putting extra cost on the baker.

You wouldn't be just creating an unrealistic businessman just to try and make your example work, now would you?  Not to mention, the window in Hazlitt's story doesn't seem to have this frightening crack that is the driver of your entire scenario.

 

Maybe I wasn't clear. His losses are others' gains.

Um.  That is not what you said.  You literally said "His losses are in effect redistributed to the majority".  Redistribution of losses is the same thing as "socialized losses".  When you redistribute something you spread it around among other people.  The only way to redistribute losses is to force other people to pay for someone else's misfortune.  This is also called a "bailout".

 

Now whether it can be said that this "makes the overall economy better off" is not something I have addressed. I'm not sure what that even means.

Um.  That's the whole foundation of what we've been discussing.  An overall economy being better off means the population as a whole is wealthier than before.  The entire point of the parable of the broken window is to illustrate that destruction of property does not make the population wealthier, it makes the people poorer overall.

Take it on a large scale to make it more easily seen.  Before the bomb went off we had a whole city.  Buildings and homes all filled with useful goods.  Streets to get around, making travel and commerce easier, an infrastructure that provided convenient electricity and water to residents, making their lives much more comfortable than they otherwise would be.  Now, after the explosion, all that stuff is gone.  Resources are now going to be consumed to rebuild all of that stuff.  Physical raw materials, time, labor...all going into replacing what already existed.  If the destruction had not occured, all of that collective effort could have gone to other things...production of more goods and services that people desired.  People already had the houses and the buildings and the roads and the parks.  All those materials and time...all those resources could have built...another city.  (Or god knows what else.  Think about the resources it takes to create a city.  What couldn't be done with that kind of capital and productive activity?)

They could have built another Disneyland.  And the world would have had a brand new theme park to enjoy.  But all that time, effort, and capital instead went into recreating what had already existed.  After consuming god knows how much raw material, how many lifetimes of man hours, how many armies worth of labor...we're just right back where we started.  All that effort, just to get back to where we already were.  The world lost a theme park (or who knows what else).

This is the whole point of the parable...destruction of wealth does not create wealth.

 

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