Broken Window Fallacy?

[Beat Mango]

Ever seen the Fifth Element? Remember the part where Gary Oldman's character Zorg, the bad guy, makes his claim that destruction is a positive thing? He illustrates it by dropping a glass, and showing how it creates work for his technicians. The clip is here:

YouTube - Fifth Element - Zorg

I was always intrigued by this idea - I mean, if everything was running perfectly, what would there be for everyone to do? A similar idea to Zorg's is actually frequently put forward by economists. For example, Paul Krugman, among many others I've come across, seem to think that World War II helped the economy out of the depression. This video describes what they call the Broken Window Fallacy:

YouTube - The Broken Window Fallacy (no accents)

Which side are you on? Does the broken window help or hinder the economy?

My view is that the broken window actually does help the economy, because a perfectly run society without destruction and crime would require far less work and effort, and therefore less people in employment. I mean, have you ever wondered how many people would be out of a job if everybody stopped committing crime, or if nobody got sick anymore? Nobody getting sick and nobody committing crime would be an unequivocal good thing, yet economists might well argue it's a bad thing! So I conclude that there must be a higher aim for society than merely the "economy", or else I'm forced to argue that crime and sickness are good things.

 

[Cogwulf]

If the economy only makes full use of its workforce by breaking things, there are too many people. If illness and destruction stopped happening the population wouldn't need to be as big. And also, more effort could be expended into improving things rather than maintaining them at their current level.

The fundamental flaw however is that each time you break something and repair it you expend energy. If you recycle a broken window, you don't need any more resources, you may count the labour as benificial, but the energy has to be put in every time.
Energy is a very finite and fleeting thing. From the viewpoint of an economist using more energy is a sign of progress, but energy should be treated as something far more valuable than something we just dig up out of the ground

 

[Cogwulf]

It's a bit to long since I posted that to edit this in, so I'll just have to doublepost...

The other issue is that while death and destruction may move lots of money around and create lots of jobs, they don't actually create wealth, they just consume it.
Everyone in jobs which creates new things sometime needs to give money to people who repair things (doctors etc.).
If people suddenly stopped getting ill, they would still earn just as much money, but have more money spare because they aren't paying doctors. So the economy as a whole would still have as much money.


You might be able to argue that the WWII created a lot of wealth, but that is only a question of motivation to be productive. As the war forced production of ammunition, the government could simply pay factories to produce millions of spoons to the same effect.

 

[Cognisant]

As always.

Spoiler

http://www.youtube.com/watch?v=5r6-o1lpJHU

But to the issue at hand, you could say fixing a broken window that was intentionally broken to create the need for it to be fixed is a waste of resources, and in of itself I think it is, however remember that the tools/skills/materials needed to fix the window only exist in the first place because there's always a possibility that the window may be broken. To put this in the same context as shown in the video, if the government didn't spend money on public works like roads/bridges/utilities/services/libraries/etc then in the short term the general public may be richer, but isn't this wealth just going to be squandered on the creation of toys, treats and other frivolities?

Would it not be better if the government used the same wealth on things like public education to enable society to create more wealth for itself in the long term?

As I see it the broken window is a good thing, not in of itself of course, instead because it ensures the means to fix a broken window will continue to exist. However I agree that it would be better still if the window wasn't broken and the money that would have been used fixing it was instead used in some form of resource generating infrastructure.

 

[Bird]

Have you ever heard of JFK?


I believe he applied this theory
and I'm pretty sure the American
economy was failing at that time.

 

[a detached retina]

In the 1800s there were no vacuum cleaners or dishwashers or laundry machines and people just did more housework. Now efforts go to better things like writing music or blogs or watching tv for hours. If there's less work to be done people can busy themselves provided you have a good economic system for spreading wealth around. If you have to break things to spread wealth that's pretty wasteful. We can't just give people money to not fix things because we're americans god damnit and we can't stomach it.

The industrial revolution put some artisans out of work. If a factory produces textiles what are the tailors supposed to do? But I for one am glad the luddites didn't have their way.

 

[EvilScientist Trainee]

Another interesting thing that I could also bring up to this discussion is the following.

Tribes that had to deal with more harsh conditions during their development became more advanced than tribes that had enough resources to live without making much effort. Let's compare - The native americans, like some of the brazilian indigenous tribes, escaped a lot of cold winters and wars, they had food everywhere, the land was good. A couple of centuries later, the europeans find those tribes - They're still walking naked, using bows and arrows as weapons.

Are we going to arrive at a plateau on our development anytime soon? As retina above said, soon there won't be much to do, will there?

 

[a detached retina]

I still think we'll experience global problems like the energy crisis, or the dying of the bees, or testosterone level declines. But the common person won't have as many hindrances. The internet was good for the economy because it improved efficiency and cut out a lot of middle men. Isn't there a term like frictional unemployment or something like that?

Good point about the tribes but I guess what I'm saying is we'll continue to have "cold winters" to deal with as a society but on an individual level people will have to do less.

 

[Jackooboy]

I think the broken window holds back the economy. It comes down to efficiency. If people are expending their energies making things like laptops, cars, ipods, doing research, being entrepreneurial, instead of spending time/money on fixing a window, ultimately everyone benefits more.

Krugman's problem in my amateur analysis (I know his credentials) is he relies on debt and calls it economic growth... Blowing things up (money supply and war) doesn't create wealth. We mortgaged the country to get to the level of production we did during WWII... After WWII we just happened to be the only unscathed industrial power and literally rebuilt the world as we know it with others paying us to do so. This allowed our debt and our economic troubles to be paid off and sidelined. I don't think war in and of itself helps the economy, unless of course the rest of the world is destroyed and we have to produce for them or we took the wealth of other nations whom we conquered, but our country doesn't do that anymore for some reason. I guess they don't want a replay of the factors adding up to WWII a la Germany.

 

[a detached retina]

I think the WWII helping the economy thing is one of the most commonly misinterpreted datum I've encountered. We were experiencing deflation and after going off the gold standard we just had to print a bunch of money and spend it hence the new deal. The war effort happened to be another brilliant way to waste a lot of effort so it got all the credit. Also like Jackooboy said we ended up on top,

 

[Gluon the Ferengi]

The Keynesian and Austrian economists have been arguing about this matter for some time.

The answer: it depends on who you are.

The broken window is generally a net loss to the community but it redistributes the wealth. If one is a beneficiary of the broken window, broken windows are in your interest even if others lose.
After World War II, the USA was a clear beneficiary of the destruction even though there was a net loss for the rest of the world.

Ultimately, the broken window type of thought is just one more way to turn economics into a zero sum game.

Broken window strategy is a natural predictable result when production is divorced from purpose.

Here's my take on the matter.

Here's Prince Kropotkin's views on the matter.

 

[Cogwulf]

Tribes that had to deal with more harsh conditions during their development became more advanced than tribes that had enough resources to live without making much effort. Let's compare - The native americans, like some of the brazilian indigenous tribes, escaped a lot of cold winters and wars, they had food everywhere, the land was good. A couple of centuries later, the europeans find those tribes - They're still walking naked, using bows and arrows as weapons.

I've tried discussing this theory before, but it doesn't seem to explain everything.
My other idea is that development in our ancestors also required free time. The tribes which never really developed lived in areas where staying alive may have meant working every day.

 

[Melllvar]

After World War II, the USA was a clear beneficiary of the destruction even though there was a net loss for the rest of the world.

Ultimately, the broken window type of thought is just one more way to turn economics into a zero sum game.

What he said.

The point of an economy is to distribute finite resources in the most beneficial way. At the most basic level, everything humans can make or do is powered by the resources we pull out of the natural environment (actually, I think this applies to all organisms and processes, not just humans). When more resources can be produced with less work, it allows people to expend their energy in other ways, so that whereas people may once have had to spend all their time gathering nuts, having babies and fighting off predators, now they can write symphonies, map the stars or ponder mathematical paradoxes (or whatever else). If you give meaningless jobs to people just so they'll be "employed" you're only redistributing the actual work that is being done by others and wasting resources.

Example: If your society has 100 people, and one person can farm enough food for all of them, then the other 99 are free to spend their time however they please (perhaps doing something in return for that farmer in order to make his farming of food worthwhile). Telling the other 99 to dig holes and then fill them back in all day and paying them with the food the farmer gets by working full-time would just be pointless and stupid. Sure, you may technically have a 100% employment rate, but you're still worse off.

 

[Trebuchet]

That broken window video has its own fallacy: the undistributed middle, which is of course a very popular political tool.

The hooligan deprived the baker of a suit.
The government deprived the baker of a suit.
Therefore, the government is a hooligan. (Well, I thought the implication was clear.)​

Beyond that, the video also assumes that only short term profits matter, and that the economy is a closed system, both of which are untrue.

The hooligan took away the baker's money, but did NOTHING with it. The money is gone. The government took away the baker's money, but did SOMETHING with it. Maybe a new high-speed train went in, and the baker will be able to get his raw materials quicker and more cheaply. Maybe his mother will have more medical benefits. Maybe the local lake will get cleaned up and his health will improve. Maybe a university will get a grant to develop rock-proof windows.

The taxes may have gone to something of less value to the baker than a suit, or it could have gone to something of more value. Maybe it hurts him in the short term and helps in the long term. Maybe it helps his neighbor more, or is applied to something he doesn't care about, like seismic retrofitting of city hall. But it isn't of zero value to the economy, the way the window was.

In short, taxes are not destruction of wealth, like the broken window. Therefore, treating the two situations as identical is incorrect.

 

[Jesse]

I think it's stupid and a populous argument. I would compare it to robots doing menial jobs. Yes those people lose their jobs but in the long run that job will no longer exist and people can go on to do better jobs.

 

[Jackooboy]

That broken window video has its own fallacy: the undistributed middle, which is of course a very popular political tool.

The hooligan deprived the baker of a suit.
The government deprived the baker of a suit.
Therefore, the government is a hooligan. (Well, I thought the implication was clear.)​

Beyond that, the video also assumes that only short term profits matter, and that the economy is a closed system, both of which are untrue.

The hooligan took away the baker's money, but did NOTHING with it. The money is gone. The government took away the baker's money, but did SOMETHING with it. Maybe a new high-speed train went in, and the baker will be able to get his raw materials quicker and more cheaply. Maybe his mother will have more medical benefits. Maybe the local lake will get cleaned up and his health will improve. Maybe a university will get a grant to develop rock-proof windows.

The taxes may have gone to something of less value to the baker than a suit, or it could have gone to something of more value. Maybe it hurts him in the short term and helps in the long term. Maybe it helps his neighbor more, or is applied to something he doesn't care about, like seismic retrofitting of city hall. But it isn't of zero value to the economy, the way the window was.

In short, taxes are not destruction of wealth, like the broken window. Therefore, treating the two situations as identical is incorrect.

What are you even trying to say?

There is no logical fallacy in the hooligan depriving the man of his money or the idea that the government equally steals that money... both the hooligan by default and government via taxes deprive the baker of HIS income.

The government actually destroys wealth when they take wealth and give it to people that invest it in an economically neutral or negative way. For instance, if you steal the baker's money and then give it to the military so they can go blow up a bridge that in turn needs to be rebuilt with more money from the baker, it's a massive loss for society. For the initial benefit to society is the original function of the bridge allowing transportation to happen easily... AKA to preserve the original functionality of the bride it is going to cost the US taxpayer 10s of millions of dollars first to blow it up and then to rebuild it! Some people think this is economic progress (Democrats)... others understand it is absolute BS... You could have taken all of the resources spent on manufacturing the fighter jet, the bomb itself, the manpower and materials etc. used to reconstruct the bridge and instead provide extra services for the community via police or fire protection or educational scholarships etc. If we took the 10s of millions of dollars and gave it to a university to fund a research program involving 500 mph high speed train. Now, let's say we took that train idea and invested a few billion extra dollars and now people can get from Boston to DC in an hour (not sure the exact mileage between the cities, just a guestimate for argument's sake)

Anyhow, now you have people taking an hour to travel between DC and Boston, with millions of people being able to take advantage in NYC and Philly as well. This ultimately will increase economic productivity because people can get to their destinations faster. They don't have to spend as much time commuting and can devote more time to working in other sectors. This ultimately will add up to hundreds of millions if not billions of man-hours over the life of the rail system.

You make progress economically by building wealth. If you never have saved wealth, you never have reserves and a cushion, if you never have reserves or a cushion, it becomes very difficult to operate economically. If the baker spends all of his money on suits, he will have none for buying flour. If the baker has no reserves, then if his bakery burns down, the things insurance doesn't cover, he'll be out. Savings is the key to a sustainable economy, that's the problem with America, we have no savings. Japan's public debt is huge, but privately, they have a net savings.

Reiterating the point I made earlier, private savings turn into capital for expansion of the economy, so in the end, the money that the baker spent fixing the window or paying the government taxes is not being used to expand the economy in others sectors deemed appropriate by the baker... and yes, salaries and wealth is limited... That's the entire study of economics-- it's the study of SCARCITY, AKA limited resources, capital, land, etc!

 

[Trebuchet]

What are you even trying to say?

I was trying to say that I found the argument used in the "Broken Window Fallacy" video to be logically flawed.

I don't find your arguments logically flawed, though I don't agree with all of them. I agree that using taxes for military spending and operations is destructive of wealth. Bridges, mass transportation, and community services are constructive of wealth. (If I have misunderstood you, my apologies.)

I disagree with your premise that Democrats want to blow things up to stimulate the economy. The Republicans have been the ones who like military spending. Public works and community services usually are on the Democrats' agenda.

You make progress economically by building wealth. If you never have saved wealth, you never have reserves and a cushion, if you never have reserves or a cushion, it becomes very difficult to operate economically.

I am a liberal progressive Democrat, and I agree with everything you said in the above paragraph.

Reiterating the point I made earlier, private savings turn into capital for expansion of the economy, so in the end, the money that the baker spent fixing the window or paying the government taxes is not being used to expand the economy in others sectors deemed appropriate by the baker... and yes, salaries and wealth is limited... That's the entire study of economics-- it's the study of SCARCITY, AKA limited resources, capital, land, etc!

If I am reading this right, your point is that taxes don't go to pay for things chosen by the baker, so you disapprove of him having to pay for those things. That is a valid political position, but it is not the entirety of economics, or even tax policy.

 

[EvilScientist Trainee]

I've tried discussing this theory before, but it doesn't seem to explain everything.
My other idea is that development in our ancestors also required free time. The tribes which never really developed lived in areas where staying alive may have meant working every day.

Yeah, i just brought that up to see what people would say. Correlation doesn't always mean causation. It's an interesting trend, anyway.

 

[Jackooboy]

I was trying to say that I found the argument used in the "Broken Window Fallacy" video to be logically flawed.

I don't find your arguments logically flawed, though I don't agree with all of them. I agree that using taxes for military spending and operations is destructive of wealth. Bridges, mass transportation, and community services are constructive of wealth. (If I have misunderstood you, my apologies.)

I disagree with your premise that Democrats want to blow things up to stimulate the economy. The Republicans have been the ones who like military spending. Public works and community services usually are on the Democrats' agenda.



I am a liberal progressive Democrat, and I agree with everything you said in the above paragraph.



If I am reading this right, your point is that taxes don't go to pay for things chosen by the baker, so you disapprove of him having to pay for those things. That is a valid political position, but it is not the entirety of economics, or even tax policy.

My point with the baker, that I didn't make blatant, is that he has the right to spend his capital the way he sees fit and or save and invest it the way he sees fit providing for himself therefore giving him and INCENTIVE to work harder and create more economic growth, hell... maybe he'll expand his business and hire some people creating more and more wealth.

Taxing people is a disincentive to work. The harder you work AKA the more you make, the more they take... Why work harder? We have a graduate system in the US where the more you make the more they take FYI.

Another problem with taking the baker's money away from him is it usually gets apportioned to pet projects that don't/won't produce wealth and or destroys it.

The stimulus in the US is a joke. Most people know it... It was a total waste of money and did little to actually produce wealth. It was a political handout to certain industries with powerful lobbies.

The US treasure has become the personal bank of the private bankers and industry backed by the US gov't.

How is giving these people money making things better and where's the evidence?

If we instead paid 35% of our federal taxes to the state level instead, I'm sure we'd have much better services etc. (Look at Switzerland). It would be much more local control and it couldn't be spent on imperialistic wars abroad, and other BS, like the CIA who traffics drugs into the US.

Do you know what the US gov't. does with our taxes?

 

[Trebuchet]

My point with the baker, that I didn't make blatant, is that he has the right to spend his capital the way he sees fit and or save and invest it the way he sees fit providing for himself therefore giving him and INCENTIVE to work harder and create more economic growth, hell... maybe he'll expand his business and hire some people creating more and more wealth.

It is clear that your political views and mine do not match. You and I are both frustrated with the US as it currently is, for totally different reasons. You put yours forth well, and your rhetoric is civil, so if you aren't already supporting your candidates with your time, I am certain they would be glad to have you.

I have argued these points for years, and I am too short on time at this time to argue them again. It is a deep topic, so quick replies would not accomplish anything. Since you know my political leanings, you have almost certainly heard everything I would say before, anyway.

I am far more interested in hearing your arguments. It seems to me that our two sides argue past each other far too much, so I might accomplish more by listening to what you are really trying to say. Democracy is based on the idea that reasonable people can have opposing viewpoints, yet not be enemies. It isn't fashionable to think so right now, but I would embrace more listening and compromise.

 

[Solitaire U.]

You could have taken all of the resources spent on manufacturing the fighter jet, the bomb itself, the manpower and materials etc. used to reconstruct the bridge and instead provide extra services for the community via police or fire protection or educational scholarships etc.

A severely flawed argument. First of all, your bridge-bombing scenario lacks plausibility and indeed seems more derivative of some political ideology applied here out of context.

Secondly, your 'solution' ("extra services for the community...") is simply credulous, though I concede to it's inalienably righteous political facade. All levels of U.S. government ruthlessly exploit "extra services for the community..." as growth opportunities. I think you fail to take into account that the things you mentioned are not simply provided by government, but rather administered through them using public funds. Fire protection is a zero-revenue service (and one that relies heavily on the science of breaking windows, ironically enough.) that local economies must entirely pay for directly out-of-pocket. The contemporary U.S. manifestation of this particular service has no long-term sustainability and is contributing factor in the U.S.'s eroding domestic economy. It's not a 'quality of life' issue...it's an issue of conditioning people to reach for a telephone instead of a water hose. This is why the U.S. legislates the placement of smoke alarms and not fire extinguishers...it promotes whatever improves the quality of IT'S life, not the lives of it's supposed benefactors. Cities don't incur the 'cost' of fire protection, they profit from appropriating public funding for it.

Law Enforcement is a more convoluted mess involving substantial revenues and other issues that take the 'broken window' concept to out of context extremes. Should be enough to just point out that policing leaves broken windows in it's wake wherever it goes, immune to it's own liability and unwilling to even gesture at the menial task of sweeping up broken glass. This does not stimulate economic growth and stability, it hinders it.

I only know enough about educational scholarships to view them as akin to rewarding the most obedient children with season passes to Disneyland, so it's obviously a topic of very little interest.

Hence, a real-life interpretation of your bridge-bombing scenario would be along the lines of a coast-to-coast Pruitt Igoe that is inherently indefensible to fire even if state-of-the-art fire departments are placed on every street corner to respond after the fact, and creates environments that breed crime and vandalism regardless of how oppressively they are policed.

The cost of fixing broken windows is a pittance when compared to the cost of breaking them. The U.S. would rather choke itself to death on "More is Better" ideologies than acknowledge this simple fact.

 

[Jackooboy]

A severely flawed argument. First of all, your bridge-bombing scenario lacks plausibility and indeed seems more derivative of some political ideology applied here out of context.

Secondly, your 'solution' ("extra services for the community...") is simply credulous, though I concede to it's inalienably righteous political facade. All levels of U.S. government ruthlessly exploit "extra services for the community..." as growth opportunities. I think you fail to take into account that the things you mentioned are not simply provided by government, but rather administered through them using public funds. Fire protection is a zero-revenue service (and one that relies heavily on the science of breaking windows, ironically enough.) that local economies must entirely pay for directly out-of-pocket. The contemporary U.S. manifestation of this particular service has no long-term sustainability and is contributing factor in the U.S.'s eroding domestic economy. It's not a 'quality of life' issue...it's an issue of conditioning people to reach for a telephone instead of a water hose. This is why the U.S. legislates the placement of smoke alarms and not fire extinguishers...it promotes whatever improves the quality of IT'S life, not the lives of it's supposed benefactors. Cities don't incur the 'cost' of fire protection, they profit from appropriating public funding for it.

Law Enforcement is a more convoluted mess involving substantial revenues and other issues that take the 'broken window' concept to out of context extremes. Should be enough to just point out that policing leaves broken windows in it's wake wherever it goes, immune to it's own liability and unwilling to even gesture at the menial task of sweeping up broken glass. This does not stimulate economic growth and stability, it hinders it.

I only know enough about educational scholarships to view them as akin to rewarding the most obedient children with season passes to Disneyland, so it's obviously a topic of very little interest.

Hence, a real-life interpretation of your bridge-bombing scenario would be along the lines of a coast-to-coast Pruitt Igoe that is inherently indefensible to fire even if state-of-the-art fire departments are placed on every street corner to respond after the fact, and creates environments that breed crime and vandalism regardless of how oppressively they are policed.

The cost of fixing broken windows is a pittance when compared to the cost of breaking them. The U.S. would rather choke itself to death on "More is Better" ideologies than acknowledge this simple fact.

We blew up a number of bridges, schools, and other civilian and strategic assets during the Iraq war which we then rebuilt... so it is plausible... and it does happen.

As for the rest of your post, besides a few inaccuracies (the federal gov't. gives many billions to local fire and police companies for equipment and sometimes salaries), I agree with you.

The government is all about expanding the bureaucracy to support the expanding bureaucracy.

My solution is to devolve power-- spending would go down in geographical areas where people are thrifty and remain the same in areas where people generally spend without restraint.

The reason I illustrated, "You could have taken all of the resources spent on manufacturing the fighter jet, the bomb itself, the manpower and materials etc. used to reconstruct the bridge and instead provide extra services for the community via police or fire protection or educational scholarships etc." is because it shows that for the same cost, you can get actual benefits... If you don't think the police and fire are a benefit, fine, maybe you'd be happier with a tax cut.

The point is that thrift adds to the economy while redundancy takes away from the economy.

 

[Beat Mango]

This broken window issue has come up again in the news, with an economist from the big shot accountancy firm Deloitte claiming that the Queensland floods will stimulate the Queensland economy. The logic is that the flood damage will require many construction workers and whatnot to repair it, which will put money into their pockets which will then see its way into the hands of Queensland businesses through increased spending. This may actually be true, but it also illustrates the zero-sum nature of economics: sure, Queensland may see an increase in spending, but the rest of the country is being hit with an approximate 5% flood levy, so they'll see less spending. All that's really happening is wealth is being redistributed. And unfortunately, it means that money is being spent on returning things to their prior state instead of more useful things that it could have been spent on had the flood not happened.

But if advocates of the "broken window" argument such as Krugman are correct, then the Queensland floods are good for our economy. Uh... no.

 

[Agapooka]

The "Broken Windows Fallacy" works because the current system is built on wastefulness. It works on the principle of sales: by expending more energy into creating a product that is of low quality, one assures that the customer will expend even more energy in replacing it. It is a ploy for taking, a concept that I've described in the thread about evil. By engineering a situation in which others will be coerced into giving up more of their effort/energy to an entity, that entity is taking from them. Such is the nature of capitalism.

It's ironic, because there has been the notion that "one day, we'll have developed technology to such an extent that human life will be easier and work unnecessary, as machines will be doing it." Yet, we must work in order to benefit from this technology, because it would otherwise be withheld from us.

Greater productivity is only helping those who sell. They can sell more if they produce more. This can even mean lower prices, but it's still a price. And a lot of what is produced is superfluous. It does not strive towards society's needs, or even anything that would benefit society - yet there are still many people who cannot meet their own needs. It just so happens that these people also have nothing that can be taken.

Essentially, we are all expending energy in a manner that I can only describe as wasteful, because otherwise, the necessities of life will be withheld from us. A lot of this energy is being taken from the planet, which is why it is being destroyed. The problem with taking is that it destroys and it is self-perpetuating. It is a circle that is very difficult to escape.

If one wishes to do good and buy a product that, we are told, was produced with more "ethics" (whatever that means), we must pay more for it. Essentially, the system is telling us that, if we want to conserve our energy, we should choose in a manner that we are told is harmful to others.

As for wars and natural disasters: it is nothing but redistribution. The construction worker gets paid to rebuild, but by whom? It seems we forget that if he is getting paid, someone is paying. How will this money be used? Will it be abandoned to the gods of wastefulness?

Agapooka