Wackonomics

[kg_veteran]

Originally Posted by mary

Beat me to it.

Thanks. Its basic opportunity cost stuff, but I'll admit I hadn't heard of the phrase "broken window fallacy".

I can't remember if I've ever heard that phrase either, but it is a brilliant and simple explanation of an often used fallacy.

I found it interesting that they gave these examples of the fallacy:

• Arguments for public works projects as a way to reduce unemployment
• Arguments for increasing the number of government employees, in order to provide employment
• Arguments for protectionist measures such as tariffs, subsidies and/or other regulations in order to protect local industries

Sounds oddly like somebody we know...

[mcsluggo]

Originally Posted by kg_veteran

I can't remember if I've ever heard that phrase either, but it is a brilliant and simple explanation of an often used fallacy.

I found it interesting that they gave these examples of the fallacy:



Sounds oddly like somebody we know...

It isn't a falacy, per se, but a weakness of basic accounting... and certainly not a falacy of some school of thought of economics versus another.

we DEFINE gdp as the market value of all the goods and services produced by an economy over a year. Because of that definition, if there are a total of 2 people in the economy, and #1 builds windows for a living, and #2 breaks windows for a living... you can have a situation where

#1 pays #2 ten dollars to break a window (which he does)

and then #2 pays #1 ten dollars to BUILD a new window (which he does)

and then rince and repeat.... as fast as humanly possible.


by the end of the year, if these chaps are particularly industrious, they may have built and destroyed hundreds of thousands of windows -- generating millions of dollars of revenues --- and thus causing GDP to skyrocket....

Clearly at the end of the year we will have one of 2 scenarios... one window in the econmy (true well being is unchanged) or zero windows if they haven't yet replaced the LAST broken one (true well being is clearly diminished) ----- true all true. but it is a simple fact derived from the basic definition of the term, not some bizzaro belief that one school of thought holds... but others reject. It is a function of the defintions that ALL accountants and economists use... and everyone is aware of this weakness...

-----it is also why to some (small) extent China's huge growth rate is over-stated. Peasants from western china live in a barely market economy... a family consumes 90 percent of what they produce, and so that 90 percent is never bought nor sold, and is not counted as GDP. However if the same peasants grow the same amount but decide to each sell their crop to each other.... suddenly gdp increases 10-fold. (and the poor saps have to start paying taxes, and their real income declines) ---- well, what HAS happened in China is these peasants have steadily moved to the eastern cities. their productivity increases in these cities (pushing up gdp) but HOW MUCH their productivity increases is overstated because they ALSO move from outside of the market economy, to inside it (souping up the statistics on how much productivity has increased)


I actually thought the original article from this thread kinda sucked eggs

take a basic premise, that every one understands perfectly well (and that NOBODY disagrees with) and then write about it in a particularly whiney and sniping manner.... poof, formula for "poignant commentary". pish.



Krugman's article isn't very well written... but I don't think he is trying to argue that the attacks were a BOON for the economy... he was TRYING to calm the fears, talk in a low even voice and say "things are not as bad as they seem---- some small amount of the economy's productive capability has been destroyed, but even the simple act of replacing what has been destroyed will help begin the recovery". But as I said, it is a poorly formulated piece that could be interpreted in several ways....