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?
OK, I'll answer the "scenario", even though I balk at saying that anyone desires money.
Possibility C: Additional window The baker acquires a desire for an additional window on the front of his bakery that supersedes his desire for a suit (say, he read in a trade magazine that more window space leads to more sales). The baker gives the glazier $250 to install the additional window, the glazier makes a window for the baker, the glazier gives the tailor $250, the tailor makes a suit for the glazier, the tailor gives the baker $250, the baker makes baked goods for the tailor, the baker gives the tailor $250, the tailor makes a suit for the baker.
The baker acquires a desire for an additional window on the front of his bakery that supersedes his desire for a suit (say, he read in a trade magazine that more window space leads to more sales). The baker gives the glazier $250 to install the additional window, the glazier makes a window for the baker, the glazier gives the tailor $250, the tailor makes a suit for the glazier, the tailor gives the baker $250, the baker makes baked goods for the tailor, the baker gives the tailor $250, the tailor makes a suit for the baker.
The final situation of Possibility C must be better than that of Possibility B and yet no window was broken. This whole exercise shows the importance of constructing a gedankenexperiment in a disciplined fashion. Just pulling something out of a hat and calling it a "scenario" or "thought-experiment" doesn't make it so.
Clayton -
Wheylous: cporter, I feel ya :P I have a question, though: isn't money borrowed from abroad "new money"? I have a friend who says that the US should borrow from abroad to improve the economy, which injects this "new money."
cporter, I feel ya :P
I have a question, though: isn't money borrowed from abroad "new money"? I have a friend who says that the US should borrow from abroad to improve the economy, which injects this "new money."
If I get what your asking, I think it would be no different than if individuals did the same thing.
"If I borrowed a million dollars a day my personal finances would be great, but eventually the bills will come due." -Ron Paul
HeathieAK:"If I borrowed a million dollars a day my personal finances would be great, but eventually the bills will come due." -Ron Paul
I remember that exact interview
That answer is satisfactory to me, but I think that he would argue that individuals don't have enough standing with foreign banks to borrow money like this. Hm, perhaps a "borrowers association" to serve as a proxy between borrower and a foreign bank?
Your friend might actually be right in saying borrowing from abroad is a good thing. This will cause Washington to default sooner rather than later, which may actually be good.
http://lewrockwell.com/orig11/mullen-t6.1.1.html
Fool on the Hill:Your "challenge" is a clear-cut example of the nirvana fallacy. If Hazlitt can create a hypothetical example, why can't I?
If Hazlitt can create a hypothetical example, why can't I?
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.
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
John James: HeathieAK:"If I borrowed a million dollars a day my personal finances would be great, but eventually the bills will come due." -Ron Paul I remember that exact interview
Hmm with Cavuto right? Yeah I liked that one;)
Anyways, I talked to Mark some more today and (even though he thinks he completely understands) he still just isn't getting even the basics at all. If you read his answer in my original post - that shananigans is basically what he repeated down to a tee (yes, even those last four lines).
On a high note, I really learned a lot more about the broken-window fallacy than ever before:)
Thanks gentlemen!
-Heather
I'm still interested in his response to my last question...
If it's the new money that is printed that creates the stimulus, and improves the economy after destruction (like an earthquake) takes place, why don't we just print up a bunch of money and pretend we have a disaster here? Like an "economic disaster aid"...
The economy could certainly use the help...Why don't we do that?
John James: I'm still interested in his response to my last question... If it's the new money that is printed that creates the stimulus, and improves the economy after destruction (like an earthquake) takes place, why don't we just print up a bunch of money and pretend we have a disaster here? Like an "economic disaster aid"... The economy could certainly use the help...Why don't we do that?
His response:
"So first you have to understand there is a big difference between new money “printed” and new money into an economy from outside sources.
New “printed” money is really just a concept. What is really happening is the Government raises the debt ceiling (much in the news lately) and offers bonds for sale on the open market. The cash these bonds brings in is available for the government’s use to fund programs like disaster relief. Except in rare circumstances, the U.S. Government does not just print money and put it out into the economy. New government money is always backed by debt. Of course it used to be backed by gold and silver. A small portion is still backed by silver and gold but it is really backed by the “full faith and credit” of the United States. This is the type of money creation known as Fiat Money and is what you are really worried about. There are all sorts of problems with fiat money especially the risk of inflation. In the Broken Window issue this “printed money” question really does not apply because there is no need to do this in either scenario. The government has plenty of money to fund disaster relief. It is a tiny, tiny, tiny portion of the US budget. In other words, the government does not have to “print” new money (raise the debt ceiling) every time we have is disaster.
Now new money into a closed economy is something entirely different. Any time a new dollar enters an economy it fuels growth. It does not matter if it is from a donation, government spending, tourism, manufacturing or if it falls from the sky. If someone spends that new dollar, it’s good for the economy. This new money effect is why the government funds disaster relief. It is the correct way to offer aid because the new dollar keeps getting spent over and over again providing aid to many different segments of the economy.
You will hate me for saying this but we do spend aid money for economic disaster and it does work to grow the economy.
There is way more “economic disaster” spending going on than you think. Hecla Greens Creek gets several types of it including offset of COBRA costs and reimbursement for job training and displaced worker payments."
JJ- Hecla Greens Creek is a silver and gold mine where Mark and I work
Holy crap. Okay, Heather, this is the point where you have to decide what your goal is here. That reply is filled with so many fallacies there is basically nowhere to begin. And it's given with such a know-it-all condescending tone, I can pretty much guarantee there is almost no way you're ever going to make headway with this guy.
So you need to figure out what it is you want from this discussion with him. Convincing him of anything, or "setting him straight" or getting him to admit you're right about something are certainly not options. The best you could hope for is educating him about something, but even then he'd never concede a single point, let alone admit he learned something from you. This guy would rather maintain a point he knows is wrong rather than be proven ignorant or misinformed.
At this point I can tell you the only possible reason for continuing with this guy is for simple enjoyment of the debate. If you get enough utility out of it, and it is more than enough to compensate for having to put up with his nonsense and his attitude, then by all means, go for it. If you need help we can offer pointers and answer questions.
But if you're just interested in educating people, you'll be much better off moving on to better fruit.
Well dang. Can't say I didn't see that coming. I guess that's just how he is. We are actually really good friends, yeah he can be kind of a pompous jerk sometimes but I still like him. :P
Again,
Mark is not a hopeless cause. He is a pretty smart guy that thinks what he knows is correct. He probably learned it all in the state schools. Unfortunately for him, he doesn't understand inflation, fiat currency, subjective value, cost, &c. It will be a long and difficult task to get him to see things from your perspective. One possible way to reach him is to challenge him to use some critical thinking. He is well versed in mainstream gibberish; he needs to compare what he thinks he knows with what he doesn't know.
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?
Economics in One Lesson by Hazlitt. It can be found in pdf online for free.
New “printed” money is really just a concept.
What is really happening is the Government raises the debt ceiling (much in the news lately) and offers bonds for sale on the open market. The cash these bonds brings in is available for the government’s use to fund programs like disaster relief.
Except in rare circumstances, the U.S. Government does not just print money and put it out into the economy.
New government money is always backed by debt. Of course it used to be backed by gold and silver. A small portion is still backed by silver and gold but it is really backed by the “full faith and credit” of the United States. This is the type of money creation known as Fiat Money and is what you are really worried about. There are all sorts of problems with fiat money especially the risk of inflation. In the Broken Window issue this “printed money” question really does not apply because there is no need to do this in either scenario. The government has plenty of money to fund disaster relief.
Could you ask him to define a closed economy? Is he talking about disaster relief or economy? Do old dollars not keep 'getting spent over and over again providing aid to many different segments of the economy'? What's so great about the new ones? If an economy is shrinking, that reflects its performance in the market. Why destroy wealth to stimulate that which has been shown to be unwanted?
The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger