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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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Someone who lives at subsistence levels necessarily spends a greater proportion of their money on "capital expenditures" (future goods) than someone who spends money on luxury items.
please explain how this is "necessarily" true.
I'm showing that you are inconsistent. You are saying that private property is justified because it is voluntary but what is voluntary is determined by it being private property. It's a circular argument. If you want to pursue this point, define what you mean by voluntary.
no, you are trying to suggest such but you fail. Private property isnt justified because its "voluntary" private property is a native axiom to the human condition. Voluntary exchange is justified because everyone involved consents to it. You consented to the arrangement with your employer. I did not consent to a given law if that law was thrust upon me without my consent.

voluntary- proceeding from the will, or from one's own choice or consent.

Keep the faith, Strannix. -Casey Ryback, Under Siege (Steven Seagal)
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Not sure of the "correct" definition, but I'll give you mine which is close to yours: Satisfaction of wants.

So your problem with an anti-propertarian position is that too many wants would be satisfied? There is no necessary connection between the ability to satisfy wants in the present and the ability to satisfy wants in the future. If I abstain from satisfying my want of food for a week, it doesn't increase my ability to satisfy my wants during the following week. On the contrary, satisfying my want of food presently increases my ability to satisfy my wants next week. In addition, the satisfaction of wants does not imply the destruction of the object providing satisfaction. When you said that "[w]ithout private property, every economic agent would be incentivised to consume everything in front of him as fast as possible," you're only saying that everyone will gain satisfaction from the things in front them. That doesn't sound so bad to me.

Moreover, judging from the few centuries evidence we have, there is a clear correlation between a society's (1) respect for private property (and abundant voluntary exchanges of same) and (2) everyone's ability to satisfy their needs and wants (i.e. wealth). The counter-factuals are also abundant (e.g. Stalin, Mao, North Korea).

What constitutes private property is in no way universal between societies. The white colonizers of North America stole the land from the natives and then prevented people from settling it until they paid the government a fee. And yet I'm guessing you consider the United States to be a society where property rights are respected.

How do you plan to implement whatever vision you have for society?

By challenging authority and resisting dogma.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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please explain how this is "necessarily" true.

They're spending everything on subsistence, that means if they spent something on luxury, they would die and not have a future. Whereas someone's luxury expenses do not increase their ability to produce in the future.

no, you are trying to suggest such but you fail. Private property isnt justified because its "voluntary" private property is a native axiom to the human condition.

What is a "native" axiom?

Voluntary exchange is justified because everyone involved consents to it. You consented to the arrangement with your employer. I did not consent to a given law if that law was thrust upon me without my consent.

voluntary- proceeding from the will, or from one's own choice or consent.

And this was your original quote:  because you choose to voluntarily associate with them, they must be treating you in a way that is acceptable to you. This is a matter of definition. If you did not accept it they would not be your employer.

I can simply say that I do not consent to a given policy of my employer. Suppose my employer creates a new policy and I refuse to follow it. If they fire me, that would be equivalent to the government throwing me in jail for violating one of their new laws. Indeed, whatever specific reason my employer has for firing me isn't something that would be found in my contract with them.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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There is no necessary connection between the ability to satisfy wants in the present and the ability to satisfy wants in the future. If I abstain from satisfying my want of food for a week, it doesn't increase my ability to satisfy my wants during the following week.

If you need a car and don't have enough money for a down payment right now, but you will next week if you avoid eating out this week, that sounds like sacrificing one level of satisfaction one week for a greater level of satisfaction next week.

On the contrary, satisfying my want of food presently increases my ability to satisfy my wants next week.

Not necessarily.  There are several factors behind satisfying your want of food that haven't been addressed (how much you eat, how often you eat, what you eat, how much it costs, etc.).

When you said that "[w]ithout private property, every economic agent would be incentivised to consume everything in front of him as fast as possible," you're only saying that everyone will gain satisfaction from the things in front them. That doesn't sound so bad to me.

Consider this: The storm of the century suddenly hits your town and because of "price gouging" laws (aka a constraint on private property) Wal-Mart can't raise the price of emergency goods to attract resources and the Holiday Inn can't raise the price of its rooms to encourage sharing.  So Sir Stanley Westerville, the richest man in town, sends his personal assistant to Wal-Mart to buy emergency goods and he gets there before anyone else. Upon seeing how cheap the goods are, he decides to buy everything they have for himself and his friends on the rich side of town, all before anyone else gets a chance to buy them.  In the meantime Sir Westerville calls the Holiday Inn, and upon finding out the news about the absurdly low prices for lodging, and reserves a room for himself, each one of his friends and each one of their kids (rich people need their space, you know), all before anyone else can get a chance to reserve a room.

Everyone gaining satisfaction from the things in front of them worked out so well!

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...someone's luxury expenses do not increase their ability to produce in the future.

Maybe, maybe not.  They might decide they like purchasing those luxury items and decide to work more and work harder to comfortably afford them.  But even if those luxury expenses didn't increase the wealthier person's productivity, they increased the productivity of the people they're buying them from, who in turn have more money to put towards goods/services that will satisfy them (and increase the productivity of the next person down the line).

Suppose my employer creates a new policy and I refuse to follow it. If they fire me, that would be equivalent to the government throwing me in jail for violating one of their new laws.

As soon as you produce your contract with the government that says you agree to be thrown in jail for violating one of their new laws.  I think mine got lost in the mail.

Indeed, whatever specific reason my employer has for firing me isn't something that would be found in my contract with them.

Have you ever had to sit through the employee handbook spiel at your place of work?  That's where one explicit contract to abide by the rules they set forth is, and you'll often sign far more pieces of paperwork to that end than that.  I'm sure there are some employers that don't do explicit paperwork, but they are becoming few and far between.

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If you need a car and don't have enough money for a down payment right now, but you will next week if you avoid eating out this week, that sounds like sacrificing one level of satisfaction one week for a greater level of satisfaction next week.

I said there was no necessary connection between satisfying wants now and later. That doesn't mean that certain cases don't require present abstinence for future satisfaction. In your example, its not that abstaining from satisfaction allows one to buy the car but rather the accumulation of money. And accumulating money does not necessarily imply abstinence from satisfaction. I might find the accumulation of money to be a form of satisfaction in itself.

Not necessarily.  There are several factors behind satisfying your want of food that haven't been addressed (how much you eat, how often you eat, what you eat, how much it costs, etc.).

Sure. But in general food is something that both satisfy a present want and allows me to live to produce and consume in the future.

Consider this: The storm of the century suddenly hits your town and because of "price gouging" laws (aka a constraint on private property) Wal-Mart can't raise the price of emergency goods to attract resources and the Holiday Inn can't raise the price of its rooms to encourage sharing.  So Sir Stanley Westerville, the richest man in town, sends his personal assistant to Wal-Mart to buy emergency goods and he gets there before anyone else. Upon seeing how cheap the goods are, he decides to buy everything they have for himself and his friends on the rich side of town, all before anyone else gets a chance to buy them.  In the meantime Sir Westerville calls the Holiday Inn, and upon finding out the news about the absurdly low prices for lodging, and reserves a room for himself, each one of his friends and each one of their kids (rich people need their space, you know), all before anyone else can get a chance to reserve a room.

Everyone gaining satisfaction from the things in front of them worked out so well!

So the point is that the expenditures of rich people deprive others of things they really need? And what, this somehow isn't true under the reign of private property? It's far too common for countries to export food while their own populations are dying of starvation.  

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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As soon as you produce your contract with the government that says you agree to be thrown in jail for violating one of their new laws.  I think mine got lost in the mail.

So all the government has to do is draw up such an agreement and you'll no longer have any objections?

Have you ever had to sit through the employee handbook spiel at your place of work?  That's where one explicit contract to abide by the rules they set forth is, and you'll often sign far more pieces of paperwork to that end than that.  I'm sure there are some employers that don't do explicit paperwork, but they are becoming few and far between.

I had my fingers crossed, I tell ya! I only agreed to sign my name on a piece of paper. I never agreed that they had the right to fire me.

 

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I said there was no necessary connection between satisfying wants now and later.

And there is no necessary meaning to your statement.

In your example, its not that abstaining from satisfaction allows one to buy the car but rather the accumulation of money.

Yes, and, as I set forth in my example, in order to accumulate that money they had to set aside other possible immediate uses for that money which would provide satisfaction.  Hence a lower state of satisfaction was set aside this week for a greater state of satisfaction next week.

And accumulating money does not necessarily imply abstinence from satisfaction. I might find the accumulation of money to be a form of satisfaction in itself.

A form of satisfaction compared to what?

Sure. But in general food is something that both satisfy a present want and allows me to live to produce and consume in the future.

And that's beside the point, since you stated that satisfying your want of food now increases your ability to satify your future wants.  There are many ways in which you can satisfy your want of food now and decrease your ability to satisfy your future wants (and many people do just that).

So the point is that the expenditures of rich people deprive others of things they really need?

No, the point is that, within the context of the suspension of private property, you presupposed "everyone will gain satisfaction from the things in front them" to mean that everyone one would be able to equally (or even fairly to be generous) gain satisfaction.

And what, this somehow isn't true under the reign of private property?

It's far less true under the "reign" of private property than under the presumption of public property.

It's far too common for countries to export food while their own populations are dying of starvation.

And behind almost every seemingly bizarre economic activity you'll to find a government rule or regulation that created it.

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So all the government has to do is draw up such an agreement and you'll no longer have any objections?

Yep.  Sounds easy enough, doesn't it?  Of course, they still have to get people to voluntarily agree to it.

I only agreed to sign my name on a piece of paper. I never agreed that they had the right to fire me.

You could agree that a man that transplants his penis from his groin to his forehead is a unicorn, that doesn't make it true.  The fact is that your signature represents your agreement with whatever conditions are set forth in the documents, and that is explicitly stated on the documents.  And if within those documents it is stated that failure to comply with rules may result in termination then yes, you did agree they had the right to fire you.

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And there is no necessary meaning to your statement.

Okay...

Yes, and, as I set forth in my example, in order to accumulate that money they had to set aside other possible immediate uses for that money which would provide satisfaction.  Hence a lower state of satisfaction was set aside this week for a greater state of satisfaction next week.

I agree. But you can't use that example to make the categorical claim that all immediate satisfaction diminishes later satisfaction. There are two completely different concepts that people imply when they use the word consumption. One is the satisfaction of wants and the other is the destruction of the item in question. These two things, however, are not universally tied together. If we are not necessarily talking about the destruction of objects, then it is hard to see how present consumption will necessarily inhibit future consumption. In addition, the destruction of an object doesn't mean that I will be less able to satisfy future wants. It just implies that I won't be able to use that object again.

A form of satisfaction compared to what?

Hmm, a form of abstinence of satisfaction?

And that's beside the point, since you stated that satisfying your want of food now increases your ability to satify your future wants.  There are many ways in which you can satisfy your want of food now and decrease your ability to satisfy your future wants (and many people do just that).

Well, maybe its beside your point, but its not beside my point. My point is that food's ability to satisfy your appetite has nothing to do with its ability to increase or decrease your ability to satisfy future wants. It has that ability because of the physical effect it has on your body. Whether that effect increases or decreases your ability to satisfy your future wants has nothing to do with whether the good is considered a consumption good by Z's definition. According to this definition, consumption goods and production goods are not mutually exclusive categories.

No, the point is that, within the context of the suspension of private property, you presupposed "everyone will gain satisfaction from the things in front them" to mean that everyone one would be able to equally (or even fairly to be generous) gain satisfaction.

Well first of all, in your scenario, people will gain satisfaction from the things in front of them regardless of these property rights. So I don't understand the point about the relationship between property and the level of satisfaction gained. Second, I don't see how government imposition of price controls amounts to a lack of property. The idea that a given person or institution (such as the state) has a legal monopoly over how a given entity is used is precisely what I mean by property.

And behind almost every seemingly bizarre economic activity you'll to find a government rule or regulation that created it.

I wouldn't necessarily disagree.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Yep.  Sounds easy enough, doesn't it?  Of course, they still have to get people to voluntarily agree to it.

I believe immigrants do sign such documents. I presented a case in another thread of an oath to the king that immigrants to colonial Pennsylvania (or maybe it was another colony) had to sign. Personally, I would probably sign it since I don't want to live on a raft in the ocean. However, I wouldn't feel obligated to follow it.

You could agree that a man that transplants his penis from his groin to his forehead is a unicorn, that doesn't make it true.  The fact is that your signature represents your agreement with whatever conditions are set forth in the documents, and that is explicitly stated on the documents.  And if within those documents it is stated that failure to comply with rules may result in termination then yes, you did agree they had the right to fire you.

Well, I'm sure there are documents that explicity state that whoever moves into a given country or city agrees to follow the laws of the land. So moving into the land represents an agreement to follow said laws.

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z1235 replied on Sat, Mar 3 2012 11:43 AM

Fool on the Hill:
But you can't use that example to make the categorical claim that all immediate satisfaction diminishes later satisfaction. 

The claim is that postonement of immediate satisfaction increases future satisfaction. If you had three apples and you ate them all today, then you wouldn't have any apples to enjoy tomorrow. Of course, without the concept of property, you could eat whatever apples you could lay your hands on, including apples that someone else has picked or is holding -- and do that today and tomorrow. But apples do not, in fact, appear out of thin air, and roasted chickens do not, in fact fall from the sky. Someone needs to postpone being a pig, at least for a moment, and actually produce them, you see.

 

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z1235 replied on Sat, Mar 3 2012 11:46 AM

Fool on the Hill:
I never agreed that they had the right to fire me.

So if, after you've invited me for dinner, I never agreed to leave your house I would be fully within my rights to stay in there forever?

 

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The claim is that postonement of immediate satisfaction increases future satisfaction. If you had three apples and you ate them all today, then you wouldn't have any apples to enjoy tomorrow. Of course, without the concept of property, you could eat whatever apples you could lay your hands on, including apples that someone else has picked or is holding -- and do that today and tomorrow. But apples do not, in fact, appear out of thin air, and roasted chickens do not, in fact fall from the sky. Someone needs to postpone being a pig, at least for a moment, and actually produce them, you see.

You're making a synthetic judgment in that case. I see no reason to believe that without property people will eat apples but not plant apple trees. Perhaps without the concept of private property, you could eat all the apples you could lay your hands on, but I don't think people would eat all the apples they could lay there hands on. I believe people have the capacity to reason, to cooperate, and to make plans. I do not buy into behaviorism and its insistence that the best way to achieve a goal is to reward desired behavior (e.g. abstinence).

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So if, after you've invited me for dinner, I never agreed to leave your house I would be fully within my rights to stay in there forever?

I probably wouldn't want you to stay there forever, and I may try to force you to leave. But I'm not sure I'd say I have a right to kick you out anymore than you have a right to be there. I don't really like thinking in terms of rights--not in this sense, anyway.

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