Economic Myths: The Broken Window Fallacy

Posted by Liberty_one March 15, 2010 at 1:31 p.m.

Late one night a young miscreant throws a rock through a bakery's front window. The next day the baker arrives to find a crowd standing outside his store, lamanting for the poor baker. The cost of replacing the broken window will be $500. However, one bright fellow decides to find the positive in the situation and points out that the glazier will benefit with $500 in extra income, and he will spend that $500 on perhaps a television etc. down the line, thus creating an economic benefit. The crowd approves of the fellow's intelligence and agrees that the baker's broken window, while a hardship for the baker, is actually a net benefit for society since all the spending and economic activity it will create.

This demostrates one of the two main economic fallacies: seeing only the affects on certain groups of people. What is not seen is what doesn't happen. Before the baker had a window and $500. Now he only has the window. What is not seen is what the baker would have done with the $500 had his window not been broken. Let's say he would have bought a new suit. Thus while the glazier gets the $500 and then spends it, creating economic activity, what is not seen is that the tailor will not get the $500 and he will not create the economic activity caused by how he would turn around and spend the $500. Hence there is no net economic benefit, only the loss of the window.

There are many other economic myths that are just bigger versions of the broken window fallacy. One common example is the idea that war is economically beneficial. What is seen is the factories making tanks, planes, bombs, guns and bullets. What is not seen is the cars, radios, stoves, televisions etc. that are not being produced since the money is being spent on the war materials. Not only is there no net benefit, society actually loses since the end result is used bombs and bullets, and destroyed tanks and planes.

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Liberty_One (anonymous) says…

This example comes from Henry Hazlitt's book: Economics in One Lesson.
March 15, 2010 at 1:38 p.m.
headdoctor (anonymous) says…

Liberty_one. I have no desire to enter into a time wasting, ignorant discussion with you. This based on our past interaction and your debate tactics that you have used and that I see you use with other posters.

There is one thing I would like to know. What makes you think you can gain any credibility by mixing a political system with a monetary system for the sole purpose of making it appear that your party concepts are superior? You insist on blending capitalist and social anarchism in with your political preference. Most of your concepts that you drag up are badly outdated and have never worked or will not work for any length of time any where in the world. The only time any part of your concepts ever worked was a few year stretch in a very small country area during or right after the effects of World War ll on that area. As soon as the areas around them started into recovery they discovered real quick that their system didn't work.

You do not seem to have much use for the abominations of the modern Republican party yet you insist on pushing ideas that will not work at all from the abominations of the modern Libertarian party. Other than for the sake or argument, what purpose does this serve?
March 15, 2010 at 2:37 p.m.
meggers (anonymous) says…

Your analogy does not make sense. Although there is no net benefit from the loss of the window, had the baker spent the $500 on other things that would have had equal stimulatory benefits as replacing the window, the end result would have been the same for everyone but the baker (but on the other hand, the glazier had extra money to purchase things he wanted).

I tend to agree with you about war, although I think you would be hard-pressed to find anyone in elected office who would admit to starting or continuing a war solely for economic purposes. Plus, the government contracts for war products and servies go to relatively few companies, leaving the rest of the economy out in the cold.
March 15, 2010 at 2:56 p.m.
notajayhawk (anonymous) says…

"One common example is the idea that war is economically beneficial. What is seen is the factories making tanks, planes, bombs, guns and bullets. What is not seen is the cars, radios, stoves, televisions etc. that are not being produced since the money is being spent on the war materials."

Not entirely true, since it assumes that 1) people would have spent all the money not taken in taxes for the war on new products, and 2) that those products would have been manufactured and available. As for the first, it's entirely possible the price of already-consumed products and services would have grown to eat up the excess disposable income created by reduced taxes; i.e., people may not have bought a second TV, the price of a TV may have doubled instead. As for the second, just because a company is willing to raise the capital and build a factory to produce tanks or submarines does not mean they would do so to make TV's or radios. (And, okay, this sounds bad, but purely from an economic standpoint, used bombs and bullets means less people competing for limited resources.)

Oh, and ignore headcase - I mean headdoctor.
March 15, 2010 at 3:05 p.m.
snap_pop_no_crackle (anonymous) says…

"headdoctor (anonymous) says…
Liberty_one. I have no desire to enter into a time wasting, ignorant discussion with you. "
I LOL when somebody says they're not going to do something and then immediately do it.
March 15, 2010 at 3:09 p.m.
tomatogrower (anonymous) says…

Last night on 60 minutes Michael Lewis talked about the fiasco that the banks and Wall Street created. He came out and said that they only see how something benefits them, and only in the short term. They have no sense of responsibility to others in society. It isn't even greed, because greed exists. He said it's a lack of responsibility. He even admitted that when he was working on Wall Street in the 80's, he received some big bonuses, small compared to what they give out today. He said he didn't do anything that his job wouldn't have required anyway and didn't even know why he got the bonuses. True then, and true now.
March 15, 2010 at 3:17 p.m.
Liberty_One (anonymous) says…

meggers (anonymous) says…

"Your analogy does not make sense....had the baker spent the $500 on other things that would have had equal stimulatory benefits as replacing the window,"

LOL, I guess it did make some sense because that was my point exactly. Whether the baker buys a new window or a new suit the economic benefits will be the same for society as a whole. The problem is that we only see the benefits that go to the glazier and not the loss to the tailor, hence the fallacy of only seeing the effects of things on specific groups.
March 15, 2010 at 3:45 p.m.
Boston_Corbett (anonymous) says…

These Libertarian types always amuse me with their economic parables.

I call them all Paultards.
March 15, 2010 at 3:50 p.m.
Liberty_One (anonymous) says…

notajayhawk (anonymous) says…

"Not entirely true, since it assumes that 1) people would have spent all the money not taken in taxes for the war on new products,"

Well there's two possible things you could be criticizing here so I'll address both. The first possible one is that the money would have been saved rather than spent. Saving is simply delayed spending though. The more people save the more that indicates a time preference for future spending. Thus the more people save the lower the interest rate would be (in free market banking) making long-term investments more feasible. These are the projects that are farthest removed from producing consumable goods like resource extraction. Since they are farther removed it will take longer to reach consumers, but since consumers have shown their time preference for spending in the future economic activity is coordinated and ultimately the economic benefits of spending are realized, just in the future. That brings me to the second major fallacy: only looking at short term effects. The economic benefits of the spending will still occur, just in the long term. I know this isn't what you were probably talking about, but I had an answer prepared anyway, since this is something Keynes calls "the paradox of thrift" and I thought I'd address it now.

Your other criticism could be a focus on "new products" in that the alternative uses of the money could be for used products or something else. But I think this would just criticizing the specifics of the analogy and not the general meaning. Whether the money would have been used to purchase toasters, lemonade, haircuts or whatever is unimportant. The point is that the spending on war materials precludes the money from being spent on something else, and hence any economic benefits that are derivitive of the spending are offset by the economic benefits that do not occur because of how the money would have been spent in the alternative.

"2) that those products would have been manufactured and available."

Again, I think this is getting away from the main point, which is that the money would have been spent on *something* (now or in the future) and thus the economic benefits of the spending would be realized no matter what.
March 15, 2010 at 4:06 p.m.
vertigo (Jesse Crittenden) says…

LOL @ war on new products... I'm going to start using that one. Thanks nota!
March 15, 2010 at 4:09 p.m.
Liberty_One (anonymous) says…

Boston_Corbett (anonymous) says…

"These Libertarian types always amuse me with their economic parables."

I watched a debate between Peter Schiff and a professor from Columbia regarding Obama's stimulus plan, and Schiff repeatedly used, as you call it, "economic parables" and the professor got irritated because he wanted to talk numbers. The problem was things like GDP = C + I + G don't explain human action while the "economic parables" do. What was funny is that when the audience was allowed to ask questions, it started to become very clear that they fully understood Schiff's points while the professor's incomprehensible explanations involving formulas didn't make any sense. In the end the professor resorted to using "economic parables" comparing the economy to a car but by that time it was clear that Columbia students should start asking for a refund.
March 15, 2010 at 4:15 p.m.
feeble (anonymous) says…

And here I was hoping for a discussion of anti-blight ordinances.
March 15, 2010 at 4:19 p.m.
vertigo (Jesse Crittenden) says…

I assume the glazier stole the window from a glass factory? That's the only way he's making $500 profit off a $500 bill.

If that's the case then the galss factory is out the cost of materials and labor to make that window.
March 15, 2010 at 4:25 p.m.
Liberty_One (anonymous) says…

headdoctor,

Since you have such distaste for conversing with me, perhaps it can be made more palatable by starting from a point on which we agree. I would hope that you could agree with me that reasonable minds can disagree; that two different people with reasonable minds can look at the same set of facts and come to two different conclusions.
March 15, 2010 at 4:29 p.m.
Liberty_One (anonymous) says…

vertigo (Jesse Crittenden) says…

"I assume the glazier stole the window from a glass factory?"

Nah, he already had it in stock. One person even whispered that the miscreant who threw the rock was an agent of the glazier!
March 15, 2010 at 4:31 p.m.
vertigo (Jesse Crittenden) says…

I would hope that you could agree with me that reasonable minds can disagree; that two different people with reasonable minds can look at the same set of facts and come to two different conclusions.

-------------------------------------------------

I disagree.
March 15, 2010 at 4:31 p.m.
meggers (anonymous) says…

Liberty One,

I guess I still don't get your point. No outside entity gave the glazier the money to fix the window- the baker did. No one forced the baker to have the window fixed- he could have left it unrepaired and paid the tailor. Or he could have saved it and paid no one, meaning that neither the glazier or the tailor would have seen any gain. Instead, he realized that an investment in his business would provide a greater yield than a new suit or having his money sit in a bank. Not to mention, having the broken window remain might have resulted in a depreciation of value for the surrounding businesses, creating an even greater net loss.

Given that, if you're trying to make a point against stimulus spending, I don't think this is necessarily the best analogy. Maybe that isn't your point at all, though. Care to clarify?
March 15, 2010 at 4:44 p.m.
Boston_Corbett (anonymous) says…

Schiff's just another Paultard.
March 15, 2010 at 4:46 p.m.
Graczyk (anonymous) says…

More high school economic theory. Sigh.
March 15, 2010 at 4:51 p.m.
Liberty_One (anonymous) says…

meggers,

I don't understand where the criticism is. You've restated my point beautifully. The point isn't about whether fixing the window was a better idea than the new suit or not. The point is the economy is not better off because of the broken window setting up the chain of transactions beginning with the glazier, because, as you point out, spending "the $500 on other things would have had equal stimulatory benefits." No new employment was created, but the people in the crowd only saw the two parties to the transaction: the glaizer and the baker, forgetting the potential third party--the tailor--because he won't now come into the transaction.

This type of thinking is that the broken window made more business for the glazier, and thus is a good thing. People look at war as being good for the economy. Look at all the houses that will have to be rebuilt because they were blown up! The construction industry will boom. But what's not seen is that a diversion of purchasing power is what is really taking place--away from what would have been purchased into housing. So what's seen is the uptick in construction jobs, but what's not seen is the jobs that aren't created, hence the fallacy that war is beneficial economically.

As far as policy goes, as WW2 was coming to a close there was a panic among economists who proclaimed the benefit of war to the economy. They thought the US was going to go right back to the depression after the war since we'd have 16 million men coming home and looking for jobs, all the war material factories wouldn't be making bombs and planes any more and so on. Regardless, they turned off the war spending and brought the men home anyway, but there was no return to the Great Depression. This is because the broken window fallacy holds true. Spending was diverted to war production, and when the war was over, it was diverted back to other things, and the economy picked up just fine. The problem was those other things aren't known or seen, while the factory building bombers is seen. People think if we shut down the bomber factory all those people will lose their jobs, like how the glazier would lose the income if the window wasn't broken. But what actually happens is employment is being diverted from war production to other areas, and the net balance for the community is the same.
March 15, 2010 at 5:16 p.m.
Liberty_One (anonymous) says…

Pilgrim, I hope you aren't getting too caught up in the specifics of an example. The point is that war spending is simply diverting spending away from where it would have gone otherwise. It doesn't matter what it is, be it cars or televisions or nylon stockings.

"So just who/what is doing without the cars and radios, etc because of the tanks and bombs, etc? Certainly not the factory workers."

The whole point is to provide an example of exactly what you are doing here: only looking at the effects on specific groups. The tank factory workers benefit like the glazier benefits. The problem is you are seeing the tailor--the party who is not involved in the transaction since the spending was diverted from something else to the tank production factory.
March 15, 2010 at 5:23 p.m.
Liberty_One (anonymous) says…

"The problem is you are seeing the tailor"

excuse me: *aren't* seeing the tailor.
March 15, 2010 at 5:25 p.m.
beatrice (anonymous) says…

In what town exactly was this window broken, Mayberry? If there are that many townfolk able to stand around looking at a broken window at the start of a work day, then the town first needs to try and fix the unemployment problem it faces. That is your error Liberty, you are worried about broken windows when you obviously should be concerned with rampant unemployment in your fictional town.

So there.
March 15, 2010 at 5:59 p.m.
Liberty_One (anonymous) says…

Bea, I think you have a point. If everyone was working instead of gawking at broken bakery windows they'd surely make up the $500 with their production. Then both the glazier and the tailor could make money.
March 15, 2010 at 6:07 p.m.
notajayhawk (anonymous) says…

Liberty_One (anonymous) says…

"Well there's two possible things you could be criticizing here so I'll address both."

In the infamous words of Arlo Guthrie, "There was a third possibility we hadn't even counted upon ..."

What I took your commentary on the fallacy of war spending to mean was that if people didn't have to pay taxes to support war spending, they'd have more disposable income for buying TVs, radios, etc. But this is not the case. The laws of supply and demand suggest that consumption would remain fairly constant, the price of that consumption would inflate to eat up that extra disposable income.

Suppose you make $100K. You pay $30K in taxes, and your semi-fixed expenses for necessary expenditures (your mortgage or rent, groceries, clothing, etc.) is another $40K. That leaves you $30K to buy that new car you wanted.

So the war spending stops, and your taxes get cut in half, to $15K. You seem to be saying that you would have an extra $15K in disposable income to buy TVs, radios, vacations, whatever. But you wouldn't. The car manufacturer would now be selling that car for $40K instead of $30K, and the price of everything else (like groceries and clothes) would go up, too. Why? Because people would have the money to pay the new, higher prices. The laws of supply and demand show us that the price of a commodity is determined less by what it costs to deliver than by what people are willing to pay for it. And most people would say 'Who cares if that car costs $40K instead of the $30K it cost last year, I'm paying less in taxes so I have the money to buy it'.

In other words, we could cut out the war spending, and it wouldn't mean people are buying any TVs or radios or whatever that they aren't already buying. They'd actually be buying less, because there are an awful lot of people working in the defense industry that would then not have the money to buy anything.
March 15, 2010 at 6:31 p.m.
Liberty_One (anonymous) says…

notajayhawk (anonymous) says…

" But you wouldn't. The car manufacturer would now be selling that car for $40K instead of $30K, and the price of everything else (like groceries and clothes) would go up, too. Why? Because people would have the money to pay the new, higher prices"

You are assuming that supply remains constant. That isn't the case, remember that resources that were being used by the war material factories are now freed up to be used on other goods. The law of supply and demand would mean that prices would NOT go up. While demand for consumable goods would increase, so would the supply since resources aren't being diverted to the war material. Prices would not go up and you'd spend the money on other things that are on your list of preferences but you couldn't afford before. These other preferences are where the resources that were previously allocated to war production would be reallocated.

"They'd actually be buying less, because there are an awful lot of people working in the defense industry that would then not have the money to buy anything."

You are making the fallacy I'm talking about: only looking at specific groups. When we stop buying bombers they have to close down the bomber plant and fire the employees. All you see is these people who now don't have a job and no money to buy things. You're not seeing the tailor--the people who are being hired in the industries to which production is being diverted.
March 15, 2010 at 7:31 p.m.
meggers (anonymous) says…

Liberty One,

Where is government in the example you provided? As Bea pointed out, one can play "what if" all one wants, but in your own example, the baker willingly repaired the window, because he clearly viewed that as being more vital to his interests than purchasing a new suit. What the other gawkers had to say has no bearing on anything, because the baker didn't use their money. Of course, per my example, the gawkers might have suffered a loss in the value of their own properties, had the window remained broken.

Every time money is spent, someone benefits in one way or another. That doesn't mean that a person or entity that does not directly benefit necessarily suffers every time a dollar is spent.

And believe me, I'm the last person who would defend war as an economic tool, so I think we can at least agree on that.
March 15, 2010 at 7:41 p.m.
Liberty_One (anonymous) says…

Meggers, there's no government in the example. The point is to show an economic fallacy--that of only looking at the effects of something on certain groups.

Yes, the baker willingly repaired the window. Clearly it's something he would want to do. I don't understand the fixation with whether the baker was forced to repair the window or not. Even if there was a city ordinance that required him to repair it, it doesn't change anything. The tailor is still not getting business that he otherwise would have while the glazier is getting business that he otherwise wouldn't.

The point is that people don't play "what if." They only see the glazier getting some extra business and hence presume the broken window benefitted the economy. If we asked what if the window wasn't broken, then we see that the $500 would eventually be spent on something else, so regardless of the broken window, someone somewhere was going to benefit from the spending by the baker.
March 15, 2010 at 7:58 p.m.
corduroypants (anonymous) says…

Am I the only one who thought a "glazier" was a guy who makes doughnuts?
March 15, 2010 at 8:10 p.m.
notajayhawk (anonymous) says…

Liberty_One (anonymous) says…

"You are assuming that supply remains constant. That isn't the case, remember that resources that were being used by the war material factories are now freed up to be used on other goods. The law of supply and demand would mean that prices would NOT go up. While demand for consumable goods would increase, so would the supply since resources aren't being diverted to the war material. Prices would not go up and you'd spend the money on other things that are on your list of preferences but you couldn't afford before. These other preferences are where the resources that were previously allocated to war production would be reallocated."

Sorry, but you're wrong. Supply does not increase as a function of the availability of resources, it increases as a function of price (with a positive correlation). Just because the raw materials become more available doesn't mean that someone's going to invest in a new factory - or an increase in capacity for an existing one - to build products using those materials, unless the price goes high enough to make that an attractive proposition.

Remember pet rocks? There's a product with a near infinite supply or resources. While people were willing to pay $5 for a 2-cent rock, there was someone willing to package and market them. Not too many people jumped into the market, though, even though there was no shortage of resources.

TVs and radios are a good example, actually. Computers are another. While there is *some* room left before market saturation, demand is not infinite. Realistically speaking, how many people have more than one large flat screen TV in their home? More importantly, how many people would add more if they had more disposable income?

Again, price is determined by what people are willing to pay for a product or service. Do you really think that the price of any product in your home - including the home itself - depended more on the cost of making that product vs. what people would spend for it? Try looking up the price of DIMMs for an older computer. An older technology 400 MHz module often costs more than a new DDR3 1333 MHz module of the same capacity. Why? Because people trying to keep older computers alive will pay it rather than buy a new computer.

"You're not seeing the tailor--the people who are being hired in the industries to which production is being diverted. "

But that assumes production will increase in other areas, which I still maintain would not be the case. If we were talking about interchangeable products - say, pork vs. chicken - then that would be the case. But tanks, fighter jets, and missiles are not interchangeable with household consumer products.
March 15, 2010 at 9:37 p.m.
Liberty_One (anonymous) says…

notajayhawk (anonymous) says…

"Sorry, but you're wrong. Supply does not increase as a function of the availability of resources, it increases as a function of price (with a positive correlation)."

Sorry, but you're wrong. The supply curve will shift outward as the availability of resources increases and thus the price of inputs decreases. If suddenly the government is no longer buying 2,000,000 tons of steel per month, the price is steel is going to drop. Thus the supply curve for all products where steel is an input is going to shift outward.

"But tanks, fighter jets, and missiles are not interchangeable with household consumer products."

No one ever said they were. However the steel used to make them is interchangeable. The factory space is, the labor is, the energy is etc. Hence it is porch vs. chicken.
March 15, 2010 at 10:38 p.m.
Liberty_One (anonymous) says…

I thought this was quite simple. Spending money on war production means money not spent on other things. It doesn't matter that the suit and the glass window are not perfectly interchangeable. The point is that spending on one thing precludes spending on something else. You can't get something for nothing. During WWII we were running short on everything else while producing for the war. As soon as the men came home and the war material factories stopped making bombs and tanks the economy didn't hit a depression and prices didn't jump. The factors of production were diverted to other products.

"Remember pet rocks? There's a product with a near infinite supply or resources. While people were willing to pay $5 for a 2-cent rock, there was someone willing to package and market them. Not too many people jumped into the market, though, even though there was no shortage of resources."

Pet rocks were copyrighted and trademarked.
March 15, 2010 at 10:54 p.m.
dmb41fan (anonymous) says…

Vertigo, first off I would like to say well done sir, I don't agree with the analogy either, but you kept it classy.
My reasoning for not believing this analogy is the simple fact that since the baker is also out $500 b/c of destroyed property, and lost time, sales, his loss is substantially larger than $500. Plus, even though it employ's a window install individual, it also causes concern of crime and raises the govt taxes to for required positions to stop meaningless not injury crimes. It also hurts insurance companies who must in turn raise their premiums to cover a party who didn't do anything wrong. So the crime has created cost to society, not a revenue cycle. Personally I think this is a poor example using a basis that govt doesn't exist in an economic scenario is not realistic.
March 15, 2010 at 11:17 p.m.
beatrice (anonymous) says…

Then there are those glass replacement people who break windows to drum up business. I kid you not: http://www.kpho.com/news/14264306/det...
March 15, 2010 at 11:34 p.m.
notajayhawk (anonymous) says…

Liberty_One (anonymous) says…

"The supply curve will shift outward as the availability of resources increases and thus the price of inputs decreases. If suddenly the government is no longer buying 2,000,000 tons of steel per month, the price is steel is going to drop. Thus the supply curve for all products where steel is an input is going to shift outward."

Yes, the supply curve will shift outward - incrementally. Suppose there really was an increase in the availability of steel amounting to 2,000,000 tons per month. There a lot of steel in your TV, is there? The price of steel could plummet 50% and it wouldn't make more than a couple of dollars worth of difference in a TV.

In cars, maybe more - but again, not all that much. The biggest costs in building a car are equipment and labor, not materials. And BTW, what would happen if that much steel became available? Are all the steelworkers going to take a fifty percent pay cut as demand falls and the price plummets? This is the other side of the coin of your example - that you just can't look at one group of people. While some people might get incrementally cheaper products, you'd have a large number of people who were suddenly unemployed, or at the least earning a great deal less.

All of which is academic - because, again, suppliers would raise their price as high as they could with people still buying their products (see 'gasoline'), and people would be willing to pay more for those products if they had more disposable income (you're forgetting that if taxes were lowered and disposable income increased, the demand curve would *also* shift - upward). Somehow I don't think suppliers would consider it a downside that their profit margin increased, too.

"During WWII we were running short on everything else while producing for the war. As soon as the men came home and the war material factories stopped making bombs and tanks the economy didn't hit a depression and prices didn't jump. The factors of production were diverted to other products."

The operative words in your paragraph being "running short". There is a big difference between making up for a shortage and creating a demand above the established equilibrium. As I said, how many people are going to buy that second 45- or 50-inch flat screen? How about computers - how many does any household need? We already have more computers in our home than we have household members - no matter how low the price were to drop (and I still maintain that drop would be minimal, if anything), we aren't buying another one.

"Pet rocks were copyrighted and trademarked. "

So is Hello Kitty. Go to Wal-mart and see how many products you can find with roundish feline figures that look almost, but not quite, like Hello Kitty. So maybe someone else would have marketed 'Pet Stones', or 'Little Brother Rocks'. You aren't seriously going to tell me that someone wouldn't have come up with a competitive product if the money was there.
March 15, 2010 at 11:40 p.m.
notajayhawk (anonymous) says…

And BTW, there's another problem with your comparison to the period after WWII. After the war, there was something else that went up dramatically besides the availability of resources - namely a huge jump in the number of consumers, millions of whom were overseas and making $35/month during the war.
March 15, 2010 at 11:44 p.m.
Eride (anonymous) says…

Wow... someone reallly needs to take some junior high level economics classes...
March 16, 2010 at 12:20 a.m.
Liberty_One (anonymous) says…

nota,

"suppliers would raise their price as high as they could with people still buying their products"

You are saying that if everyone suddenly had higher incomes prices would just rise to meet those incomes. Sure, that's true. But that isn't what's happening. No one's income has gone up. If you made 100k and paid 30k in taxes and then you made 100k and paid 15k in taxes, you still made the same amount of money--100k. The difference is that instead of someone else spending that 15k on something you are now spending that 15k on something else. Instead of the 15k going to the glazier it's now going to the tailor. The total spending is the same, it's just going somewhere else. Aggregate demand is the same and thus prices will be the same.
March 16, 2010 at 12:37 a.m.
Liberty_One (anonymous) says…

dmb41fan (anonymous) says…

"the baker is also out $500 b/c of destroyed property, and lost time, sales, his loss is substantially larger than $500. Plus, even though it employ's a [glazier], it also causes concern of crime and raises the govt taxes to for required positions to stop meaningless not injury crimes. It also hurts insurance companies who must in turn raise their premiums to cover a party who didn't do anything wrong."

I'm getting the strangest comments about this. None of these things is germane to the main point: the broken window only diverted the spending from where the money would otherwise have gone. People can easily see where the spending goes (to the glazier) but they don't think about where it could have gone otherwise.
March 16, 2010 at 12:46 a.m.
BorderRuffian (anonymous) says…

Guys, guys, guys...

What you are all missing so far in this picture is the vile young miscreant who heaved the brick through the window. Let's take another look at the situation...

First, after said window is repaired and you guys are still locked in a debate on political idealism, the City of Lawrence spends thousands of dollars nd hundreds of man-hours tracking down said miscreant. Further thousands and thousands of dollars are spent in the courtrooms prosecuting the aspiring little Jayhawk, and thousands more are spent defending the little dickens, while his mommy and daddy go broke. In all probability, some liberal-socialist decides the real need is to enroll the little brickheaver in a special needs program, costing the state additional thousands and thousands of dollars, all the while preparing the entitled little bast%@# for a future life of government entitlement resulting in a career in crime for which taxpayers spend more thousands of dollars trying to recover from.

Eventually the little miscreant grows up, becomes a politician, and continues to live off of the efforts of hard-working citizens. Millions more dollars spent.

This, my dear friends, is where the real economic impact is felt. Take away the hyperbole in this missive and we still are closer to the truth than the simple economic lesson over the redirection of funds and its supposed economic impact.
March 16, 2010 at 7:01 a.m.
Cappy (anonymous) says…

Hmm, to put this in perspective of today's economy, I bet it was the glazier who threw the rock through the window.

To follow the logic of the guy with the theory, everyone should pick up a rock and go break a window!
March 16, 2010 at 8:26 a.m.
jayhawklawrence (anonymous) says…

I think this is an interesting discussion but I think it points out the limitations of trying to govern based strictly on economic analysis alone. There are simply too many competing theories based on an infinite amount of variables.

I think we let our lives get too complicated. We have too many websites we are trying to keep up with and too much junk mail and a too complicated tax structure, etc. We are hoarding information and we have hoarded so much of it that we are becoming disfunctional.

Take the window as an example. I think the baker was actually planning to replace the window and use the tax credit for energy savings. He was just procrastinating and busy with other things so the kid did him a favor by busting the window. He may also have a wife who tosses nickels around like manhole covers and did not want to spend any money even though the baker knew he would get it all back the first year in energy savings.

The kid was a convenient excuse so he would not have to confront his wife.

The baker saved 35% on the window replacement in tax credits, avoided a confrontation with is wife, got to vent some frustration on society and juvenile delinquents and saved money on his heating bill.

He also got the $500 from the kid's parents because the guy in the crowd was an economist and nobody in their right mind believes an economist.
March 16, 2010 at 9:27 a.m.
bad_dog (anonymous) says…

Chemistry, biology = "The Hard Sciences"
Sociology, psychology = "The Soft Sciences"
Economics = "The Dismal Science"
March 16, 2010 at 10 a.m.
georgiahawk (anonymous) says…

I have never heard that vandalism was considered an economic stimulus. Am I missing important economic discussions where they are debating the economic benefits of vandalism and crime? Your parable is meaningless!
March 16, 2010 at 10:25 a.m.
vertigo (Jesse Crittenden) says…

Apparently noone on here has been in the military before. If you had you would know that we have NO problems buying all the TVs, computers, furniture as well as tanks, jets, etc.

Just last week I was told by our Comm folks that I need to turn in my 1 year old computer for a new one. I told them I don't want a new one this one works perfectly fine. They told me "well the air force is switching over from XP to Vista and everything on the network has to be the same". Ok... then install Vista on this computer. Nope can't do it. The new computer has already been purchased and your old one is going to DRMO.

If the government (ALL agencies) would get out of the mindset of "use it or lose it" when it comes to budgets a public option in healthcare reform would be of no concern.

Sorry I'll go back to watching one of the three big screen LCD tvs in my office of 6 people.
March 16, 2010 at 10:43 a.m.
jadkansas (anonymous) says…

Why care about what may happen instead of what will happen. Law enforcement wasting time and resources catching the vandal, the courts wasting time and resources prosecuting him. Then in the long run, thanks to turning this one time offender into a hardened criminal by wringing him through the judicial system, he comes back and holds up the baker, possibly killing him in the process.

Of course this scenario is about as hypothetical as what the baker may have spent his money on otherwise.

Having an imagination is fun.
March 16, 2010 at 11:41 a.m.
notajayhawk (anonymous) says…

Liberty_One (anonymous) says…

"You are saying that if everyone suddenly had higher incomes prices would just rise to meet those incomes. Sure, that's true. But that isn't what's happening. No one's income has gone up. If you made 100k and paid 30k in taxes and then you made 100k and paid 15k in taxes, you still made the same amount of money--100k."

Now *that* is absolutely untrue. I look at my gross income once a year - when I'm filling out my taxes. The rest of the year all that matters is what's in that little box on the check.

The demand curve has nothing to do with what a population's gross earnings are, but on what their purchasing power is - their disposable income. This is the reason why higher taxes stifle an economy and lower taxes stimulate it.

"The difference is that instead of someone else spending that 15k on something you are now spending that 15k on something else. Instead of the 15k going to the glazier it's now going to the tailor. The total spending is the same, it's just going somewhere else. Aggregate demand is the same and thus prices will be the same."

Again, fundamentally untrue. That is only true with equivalent or competitive products. If there were no wars, people would not be buying tanks and warships. They would be buying the same consumable products they're already buying. The demand for those consumables would not rise proportionately to make up for the lost production of warfighting products - as I've said, how many TVs, computers, radios, even cars does a household buy? The increase in peoples' wallets and bank accounts would be eaten up by the inflation of prices for the products people are already using - because they'd be willing to pay it, because they could afford it. That is the entire basis for the demand curve. There would be *some* increase on the supply side, because the increased prices would make that worthwhile, but there is simply no way that the increase in production for consumer products would match the lost production of warfighting materials.

*********************************************

vertigo (Jesse Crittenden) says…

"Apparently noone on here has been in the military before. If you had you would know that we have NO problems buying all the TVs, computers, furniture as well as tanks, jets, etc."

I don't think anyone mentioned doing away with the military altogether. What Liberty was talking about was the costs of fighting a war. In peacetime, the military would still be buying all those things you mentioned. However, they would be buying substantially less ammunition, fuel, replacement humvees/tanks/helicopters, etc., if they weren't fighting an active war.
March 16, 2010 at 10:29 p.m.