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s/window/wealth holder's window/ It is often argued that the 'breaking windows' scenario is a fallacy because the capital redirected to fix the window would be

by qdog 15y ago

s/window/wealth holder's window/ It is often argued that the 'breaking windows' scenario is a fallacy because the capital redirected to fix the window would be used for something more productive, which is only true assuming a company or individual is utilizing this excess capital. So, you have to break windows where people are holding capital, ie: the owner of the window is wealthy. If you break a window at the local pizza joint that is barely breaking even, you probably get a negative return (unless the new window is somehow superior to the old window...). People who are wealthy or think they are going to be wealthy don't really like this approach, obviously, but unlike an individual who benefits from holding assets, the economy requires a constant, sometimes increasing, flow of economic activity (you get paid, you pay for goods and services, your money keep circulating, etc.).

brc 15y ago
Yours is a common misconception of the Broken Window Fallacy. Most people think the fallacy is just a statement about destroying things in order to create jobs. While this is true, the deeper meaning of the fallacy is that every action has a consequence, both negative and positive. But the problem most economists and politicians have is that they only look upon the easily measured and obvious outcome (the work for the glazier). They fail to consider the non-obvious outcome, which is the tailor who sells one suit less, because the bakers money was diverted to the glazier instead. The broken window fallacy is a tool to help us analyse all of the consequences of an action, rather than just the obvious ones. So, whenever a make-work government program is announced, all we hear about is the x,000 jobs it will create. What we don't hear about is the x,000 jobs that must not be created in order for those to happen. We don't hear about it because it's likely to be 1 job across x,000 industries, rather than x,000 jobs in 1 industry. The money for make-work programs must come from taxes, or from borrowings, which is just future taxes brought forwards. Thus, when people pay more tax, they must therefore spend less elsewhere. This is not a request for a zero-tax environment, it is just a call to recognise the entirety of economic actions, not just the obvious ones. That is the broken window fallacy.
- wnight 15y ago
  He was talking about a specific edge case where the window-owner wasn't going to spend the money - ever. In this case the community would have the money and the hoarder would live identically to before - minus the nest egg. As you say, if they weren't guaranteed to hoard the money then the window would cancel out a suit, or some other economic activity.

by qdog 15y ago

brc 15y ago

Yours is a common misconception of the Broken Window Fallacy. Most people think the fallacy is just a statement about destroying things in order to create jobs. While this is true, the deeper meaning of the fallacy is that every action has a consequence, both negative and positive. But the problem most economists and politicians have is that they only look upon the easily measured and obvious outcome (the work for the glazier). They fail to consider the non-obvious outcome, which is the tailor who sells one suit less, because the bakers money was diverted to the glazier instead. The broken window fallacy is a tool to help us analyse all of the consequences of an action, rather than just the obvious ones. So, whenever a make-work government program is announced, all we hear about is the x,000 jobs it will create. What we don't hear about is the x,000 jobs that must not be created in order for those to happen. We don't hear about it because it's likely to be 1 job across x,000 industries, rather than x,000 jobs in 1 industry. The money for make-work programs must come from taxes, or from borrowings, which is just future taxes brought forwards. Thus, when people pay more tax, they must therefore spend less elsewhere. This is not a request for a zero-tax environment, it is just a call to recognise the entirety of economic actions, not just the obvious ones. That is the broken window fallacy.

wnight 15y ago
He was talking about a specific edge case where the window-owner wasn't going to spend the money - ever. In this case the community would have the money and the hoarder would live identically to before - minus the nest egg. As you say, if they weren't guaranteed to hoard the money then the window would cancel out a suit, or some other economic activity.