quotes:

"Most people are in arrested development and cannot use logic." Jacob.
"Competition and capitalism are hated to-day because of their tendency to destroy poverty and privilege." William Hutt
"America is unique in that our economy is totally dependent on global charity." Peter Schiff

Wednesday, August 1, 2012

Broken Windows.

Someone over at the mises.org forum came up with a critique of the Broken Window Fallacy, and how it does not apply in the real world.

You see the broken window fallacy quite often on TV. For example, right after Hurricane Katrina, some dude claimed that New Orleans would now be in better economic shape than ever, since all the destruction caused by the hurricane would have to be fixed, meaning there would be more jobs.

Indeed, the heart of the fallacy is one that is almost universal, come to think of it. When any politician talks about fixing our miserable economy, what does he talk about? Jobs. That's it. Never once is there any mention of increasing production. It's all about jobs.

Now from a politician's point of view, that makes a lot of sense. More jobs means more votes. More production doesn't mean anything, to him, because products don't vote.

And the broken window fallacy pretends that this is an economic truth, as well. Better to have more jobs and fewer products than more products and fewer jobs. Put that way, it sounds pretty feasible, even humane and moral.

Time to bring in our old friend, Devil's Advocate[=DA] , and have a dialogue between him and Smiling Dave [=SD].

DA: Well, what do you have to say for yourself, wicked Smiling Dave, you heartless thing oriented person. Aren't people's lives more important than a few baubles? Isn't "more jobs" a superior goal to "more production"? Do you want everyone to starve to death while more useless trinkets are made?

SD: Say I gave everyone a job at the post office. Everyone. What would happen?

DA: What a silly question. We would run out of food and clothing and everything else very quickly. Everyone would get a paycheck and spend it on what they want, but no new things would be made. When I said we need more jobs, I didn't mean moving people from productive into parasitic jobs.I meant moving people from off their couch and off the streets into dignified employment.

SD: Is working in the post office the kind of dignified employment you are talking about?

DA: Why not? Indoors, nice pay, good pension, doing something useful.

SD: If it's so great, why doesn't the post office hire all these people right now?

DA: Because the post office is losing money as it is, and hiring more people means it will lose even more money.

SD: Another way of saying those jobs are parasitic. The new employees get pay checks, but do not produce anything in return, at least not enough to cover the cost of hiring them. Meaning they get to eat for free. Nice for them, but not very nice for whoever is feeding them. In fact it's not very nice for the economy as a whole, meaning for everyone, because what the parasites eat is not replaced. After they spend their pay checks, there is less for everyone else.

Moving people from unemployment to a parasitic job is almost as bad for the economy as moving them from productive jobs to parasitic jobs. In both cases, there is less and less to go round for everyone. 

DA: Ok, Mr Smartypants, then what is the answer for all those unemployed people? You want them to just starve?

SD: Of course not. I want them to get productive jobs. Jobs in which what they take away from the general stockpile of goodies is constantly replaced by the work they do. And, of course, that is truly dignified labor. Where your work benefits humanity, as opposed to hurting humanity.

DA: And just who are you do decide which job is productive and which one isn't?
Do you think you are smarter than the brilliant President Obama, who created jobs at Solyndra to the tune of half a billion bucks, only to have the company go bankrupt in a few months?

SD: What do you think I am, a central planner, a Soviet Comissar? The free market will decide, of course.

DA: And what if the free market decides there are no productive jobs for these people?

SD: Then the gov't will have to lower the huge expense of hiring people, so that their jobs will become productive, meaning worth the money the employer has to spend on them.

DA: What if the gov't is too stubborn or too afraid to change the laws?

SD: Then we will have chronic high unemployment, like they do in Europe.

DA: Then shouldn't we give them free money?

SD: Sure, if you want to destroy the economy, meaning make everyone poorer and poorer because more is consumed than produced.

DA: And what has all this to do with the broken window fallacy, and that brilliant article over at mises.org?

SD: It's an intro. The hour is getting late, this article is getting long. But the takeaway is that more jobs means nothing. More productive jobs means something. And that if our pool of resources is lessened by a job, that job is parasitic and should not exist. Simple math. Take away more from a pile than you put in, and the pile gets smaller. Tune in for part two next time.

2 comments:

  1. Unfortunately the broken window subject is much like arguing the butterfly effect, there is never a specific context that we can bring it into play and example to logically show that there is 100% benefit. Nothing comes without sacrifice.

    -Solomon Berkovitch

    ReplyDelete
  2. Not sure what you mean.

    BTW, my humble blog has moved to http://smilingdavesblog.wordpress.com/

    Pitka tava to you.

    ReplyDelete