Saturday, March 12, 2011

The Tragedy In Japan and The Broken Window Fallacy

H/T The Other McCain

Never mind that thousands are dead or injured and hundreds of thousands are homeless, the Wall Street Journal seems to suggest that Japan's floundering economy could see benefit in the destruction.
Some economists have argued that a quake could actually lift the economy in the long run, by requiring a surge in rebuilding spending.
Certainly it is in poor taste to even broach this subject but this is how Keynesians think; steal from the masses and use the proceeds to fund government projects. Never mind that the money could be put to better use and I am damned sure that no matter how great things are rebuilt, the affected people in Japan would not have wanted this tragedy to occur in the first place.

Frédéric Bastiat warned us of this line of reasoning some 160 years ago but progressives always look for some silver lining in a tragedy as a way to expand their big government, socialistic beliefs. For if things really worked this way, wouldn't we just blow up cities in order to reap the economic benefit from rebuilding them?

9 comments:

  1. The oathkeepers disproved the broken window fallacy. Keynsians simply want a crisis so that they can steal other people's money.

    ReplyDelete
  2. Keynsian's didn't cause an earthquake.

    Reality is that a LOT of cars got trashed. A LOT of buildings got trashed. A LOT of roads and other fixed assets like parks got trashed.

    The cars will be replaced with newer cars. The buildings will be replaced with newer buildings. This is a simple fact.

    People will get hired to build cars, buildings, and repair things. Nothing philosophical about it.

    ReplyDelete
  3. There could yet be an even bigger aftershock.

    ReplyDelete
  4. >People will get hired to build cars, buildings, and repair things.

    And the money for that will be diverted from other things, so 1) any new jobs will be balanced out by a decrease in demand in other areas, and the resulting loss of jobs, and 2) if the people who lost the property replace it, they will still have the same amount of property, but less money, and with less money, they will be unable to purchases other things that they would have purchased, thereby lowering their standard of living.

    As Bastiat so clearly explained, there are things that are seen, and things that are unseen. The "new" jobs replacing things that were lost are things that are seen. The displacement of money and jobs, and ultimate loss in aggregate, are the things that, at least initially, are unseen.

    ReplyDelete
  5. I guess I'm missing something. An act of nature occurred. A week ago, that levy was intact, and today there's a big hole there. It's nobody's fault, but the whole area the levy was supposed to protect is flooded. So it will get repaired.

    Everyone who was leasing or paying payments on their car, if the car was destroyed, will get a settlement, and they'll have to replace the car. Glad I don't have a position in any liability insurers who have big exposure to Japan. So I guess I'm a monster too, right?

    I got a good education in a Big Ten university, but never took enough Econ theory to know who Bastiat was. And who cares? Theory isn't going to address the levy with a hole in it. I know from experience that when the levy has a hole in it, it will get fixed, and they WILL complain that they can't afford it. NOBODY will discuss anybody named Bastiat while they're complaining that they don't have the cash to pay for it. The contractor(s) who work on the damage will hire extra people, and will work their employees extra days and hours, no matter who is chosen to do the work.

    Anybody who wants to, can be a sidewalk superintendent, and walk up and down the side walk with nose pointed toward the sky. That person can talk to the sky about right and wrong, and economic theory, and NOBODY will notice that spectator was ever there.

    ReplyDelete
  6. >will get a settlement, and they'll have to replace the car

    And that will all be more money diverted from other places, meaning that other people will not be making that money, individuals will not be able to acquire the property that would have been acquired with that money, and the sum total is LESS prosperity. It's not "theory." It's the reality of economics. (You don't need to be afraid of theories, anyway. In fact, you might actually learn something.)

    It is clear that you really NEED to read Bastiat. Or at least think more deeply than the false and misleading surface.

    Maybe I can explain it more simply. Let's say that you have $20,000 and a car. Then let's say that a meteor hits the car, destroying it. Wanting to have a car, I spend $15,000 to buy a new car. What do I have now? I have $5,000 and a car. I used to have $20,000 and a car.

    Now, compare these:

    $20,000 and a car
    $5,000 and a car

    In which case do I have more?

    Now, assuming that other $15,000 is still in the system, and to make it simple, let's say that it went to another person, and he used it to buy a car.

    The total of my money and possessions and his money and possessions then comes to $20,000 and two cars.

    Now, let's say that my first car was never destroyed, but that I still spent $15,000 to buy a new car. That $15,000 is then used by the other person to buy a car. What is our total money and possessions? $20,000 and 3 cars.

    Which is more, $20,000 and 3 cars or $20,000 and 2 cars? (Multiply that by tens of thousands of people and organizations, and you will start to get an idea of the devastation to the Japanese economy that the earthquake and tsunami will be making in the future.)

    As should be clear, then, destruction of property does NOT bring more prosperity, nor does it even allow the same level of prosperity, but always DECREASES prosperity. If you had read Bastiat, or understood the fundamental workings of an economy, you would have understood that already.

    ReplyDelete
  7. RCD

    No one is denying that Japan needs to rebuild after this horrible tragedy. That is for certain but for economists to suggest that Japan could be in a better economic position because of it is falling into the trap of Keynesian theory.

    The parable of the broken window that Bastiat spoke of is germane because in the abstract, society as a whole is better off with their stock of wealth intact rather than being forced to invest it in replacing what they previously had.

    ReplyDelete
  8. >will get a settlement, and they'll have to replace the car

    And that will all be more money diverted from other places, meaning that other people will not be making that money, individuals will not be able to acquire the property that would have been acquired with that money, and the sum total is LESS prosperity. It's not "theory." It's the reality of economics. (You don't need to be afraid of theories, anyway. In fact, you might actually learn something.)

    It is clear that you really NEED to read Bastiat. Or at least think more deeply than the false and misleading surface.

    Maybe I can explain it more simply. Let's say that you have $20,000 and a car. Then let's say that a meteor hits the car, destroying it. Wanting to have a car, I spend $15,000 to buy a new car. What do I have now? I have $5,000 and a car. I used to have $20,000 and a car.

    Now, compare these:

    $20,000 and a car
    $5,000 and a car

    In which case do I have more?

    Now, assuming that other $15,000 is still in the system, and to make it simple, let's say that it went to another person, and he used it to buy a car.

    The total of my money and possessions and his money and possessions then comes to $20,000 and two cars.

    Now, let's say that my first car was never destroyed, but that I still spent $15,000 to buy a new car. That $15,000 is then used by the other person to buy a car. What is our total money and possessions? $20,000 and 3 cars.

    Which is more, $20,000 and 3 cars or $20,000 and 2 cars? (Multiply that by tens of thousands of people and organizations, and you will start to get an idea of the devastation to the Japanese economy that the earthquake and tsunami will be making in the future.)

    As should be clear, then, destruction of property does NOT bring more prosperity, nor does it even allow the same level of prosperity, but always DECREASES prosperity. If you had read Bastiat, or understood the fundamental workings of an economy, you would have understood that already.

    ReplyDelete
  9. So, instead of actually providing a counterargument (or an attempt, anyway, since I have yet to find anyone that can argue effectively against Bastiat) here, "Real cab driver" stops by my on-hiatus blog and drops a pile of gibberish, starting by introducing himself/herself as "Idiot." (I didn't need the introduction, but it was refreshing to see such good manners in this all-about-me postmodern world.)

    ReplyDelete

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