Krugman and the Broken Window Fallacy

[Julian le Roux]

This thread is a response to Garth's claim that he can't find the economic error in the following Krugman article:

http://www.nytimes.com/2012/09/14/opinion/krugman-the-iphone-stimulus.html

From my perspective, Economics has at least three foundational concepts:

1. Opportunity cost

2. Marginality

3. Incentives matter

The parable of the broken window is simply a demonstration of the concept of opportunity cost.

If someone willfully and repeatedly advances the broken window fallacy, so grave is the error that I will no longer accept them as a serious economist. It is akin to a physicist claiming that perpetual motion exists. They may be very smart and very articulate, produce(d) great ideas, have excellent economic modelling skills, have a vast knowledge of macroeconomics etc. But in my opinion, they should not be treated as serious economists, because their economic understanding has massive structural flaws (otherwise they are incredible liars and/or bullshitters)

Garth, before you respond, please read (and assimilate!) all the following material. Notice that the authors include Bryan Caplan, Russ Roberts, Don Boudreaux, Alex Tabarrok, Tyler Cowen, David Henderson.  Sure, I've also included two cultists at the end (Murphy and Block), but their arguments aren't based on Austrian economics, so you can assess the ideas without fear.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

http://econlog.econlib.org/archives/2012/08/bastiats_what_i.html
"But the central theme of the essay - opportunity cost - is hardly ideological."

http://cafehayek.com/2011/08/the-microeconomics-of-the-broken-window-fallacy.html

http://marginalrevolution.com/marginalrevolution/2011/09/the-breaking-windows-fallacy.html

http://marginalrevolution.com/marginalrevolution/2011/09/a-further-note-on-the-broken-windows-fallacy.html

http://econlog.econlib.org/archives/2011/11/the_modern_bast.html

(read the comments, which are instructive. IMO Karl Smith does not appear interested in the value of truth)

http://cafehayek.com/2012/10/disastrous-economics.html

http://cafehayek.com/2012/10/vulgar-keynesianism-at-full-gallop.html

http://blog.acton.org/archives/44928-hurricanes-lead-to-broken-windows-and-broken-window-fallacies.html

http://www.forbes.com/sites/timworstall/2012/10/29/frankenstorm-sandy-will-boost-the-us-economy/

http://lesswrong.com/lw/370/broken_window_fallacy_and_economic_illiteracy/

http://lewrockwell.com/block/block210.html

http://mises.org/daily/5593/The-BrokenWindow-Fallacy

http://consultingbyrpm.com/blog/2011/09/ozone-krugman-landsburg.html

http://consultingbyrpm.com/blog/2012/09/krugman-at-least-clarifies-his-position-on-the-broken-window.html

(The back and forth comments in this article highlight why Krugman is such a good bullshit artist.  He relies on implication and the ambiguity of language, so that if you try to call him out, he leaves enough space to wriggle through and claim that his accuser has unfairly misunderstood.  People like Leon and I pick this bullshitting up immediately (and it makes us ANGRY), while people like Garth, Daniel Kuehn & Karl Smith give Krugman the benefit of the doubt.  Screw that.  Krugman may not know what he is implying, how his audiences will interpret his words, but frankly I don't give a damn. He plays fast and loose with the truth.  Someone who respects and worships the truth would be at pains to make it crystal clear that he is NOT under any circumstances advancing the broken window fallacy.  Scant regard for the truth is what defines bullshit, and is why I absolutely loathe it. To see where I'm coming from, I encourage readers to pick up On Bullshit and On Truth by Frankfurt (thanks again Paul))

[Jaco Strauss]

Thanks Julian

Whenever I read any "stuff" by this moron I am left perplexed as to how intelligent people can take him so seriously. 

The fable of the naked emperor is the only logical explanation I can think of. Perhaps I should read it to my kids tonight; it might just help them to detect bullshitters far more effectively than some very learned people on this list seem able to do....

J

2013/4/15 Julian le Roux <leroux...@gmail.com>

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Jaco Strauss
Kaapstad

[Julian le Roux]

My pleasure Jaco

Please don't use 'moron', that's caused enough trouble already ;)

The emperor's new clothes is the perfect parable for Krugman, thanks for mentioning it.  I would also add this explanation: People (especially those who consider themselves intellectuals) very often value intelligence / rhetoric / shrewdness / cunning / canniness over truth and honesty.  Hence the respect that is given to a deceitful but skilled lawyer.  Indeed, the intelligentsia often treat honesty as naive and bourgeois (I should probably read Hayek's Intellectuals and Socialism again).  Thus they do not balk at bullshit's indifference toward the truth.  In contrast, I worship truth, so bullshit is anathema to me. One of my favourite quotes is from Jefferson:
"There is no truth existing which I fear, or would wish unknown to the whole world"

[Erik Peers]

How does one explain the obvious? Unfortunately with difficulty.

When the topic of a debate becomes too broad it ceases to be meaningful. Rather than offering an opinion on Krugman I consider it more useful to this forum to comment on this particular article about the iPhone stimulating the economy precisely because it makes previous iPhones obsolete (his words not mine) and thereby causing consumers to spend to replace their current phones. He points out that it is not the fact that it is a better phone that provides the immediate benefit, but that people spent.

The potential analogies are so many, from concluding that 9/11 was good because it stimulated the economy because builders could rebuild the Twin Towers, greater emoloyment by the military,  more jobs in armament factories etc, but let me stay closer to home.

In the 80's Pick 'n Pay tried to offer consumers an option of self service when filling their cars with petrol (as practised in most of the world). The cost saving was passed on to the consumer by discounting the price of the petrol. Or to phrase it differenty the forecourt service element of petrol was unbundled and made transparent (as the state now regulates insurance brokers to divulge their commission separate from premiums which pay for the insurance). One would think that this was a win win. A lower cost for petrol (leaving more money in the consumers' pockets so that they could buy more goods at Pick 'n Pay), greater consumer sovereignty etc

Pick 'n Pay, after a gallant battle, were forced to stop discounting petrol. The major argument against? That the forecourt attendants would be out of work. (And logically following Krugman GNP would therefore decline because they would now not have wages to spend). Following this line of reasoning ATM machines should be illegal because of the bank tellers and their salaries they replace, crime is a net good to SA because it causes more security guards to be hired and their salaries stimulate the economy. In fact the new LED light bulbs should be illegal because they last so much longer putting old light bulb workers out of work, the result being a decrease in GNP because their salaries are lost to the economy.

Let me stop now. This is becoming rediculous. To repeat my earlier question, how does one explain the obvious?

In conclusion, Is this the 5 minute argument or the full half hour? (Monty Python). It would appear, that as established on this forum, that Krugman is technically not a moron. Therefore I conclude he just likes the full half hour. Anything less would not be as satisfying.

[Erich]

I am sure that we can all agree that breaking someone's window is just a destruction of capital, but there is more to it, I feel.

Take WWII, one could say that it was a huge window. There was a lot of destruction, and this gave many people the opportunity to rebuild afterwards. All unnecessary we could say, but it also got rid of inefficient parts of town, machinery etc. Look at any big city today, and there are parts there that could do with a good bombing to get rid of them and give us the opportunity to start anew, like after a highveld fire.

I think that it is all part of evolution, afterall we all die and produce offspring that are an improvement upon ourselves. Sometimes helping this a long is not such a bad idea.

[Colin Phillips]

Can you conceive of a part of town which *would* be improved by indiscriminate bombing and collateral murder, which *would not* be improved at least as much by safe controlled demolition?

If you can't, then bombing a city isn't creating any opportunity that isn't there already.  If you can, you need to explain why this hasn't been done.

Obviously, by "improved", I mean in terms of the subjective preferences of the property owner.

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[Garth Zietsman]

I don't know what's supposed to difficult about the broken window issue.  The re-arming and massive resource mobilization before, during and after WWII was clearly a massive stimulus to income (GDP) and employment.  At the same time the war itself involved a massive decrease in wealth.  No doubt the latter was larger than the former so the net position (on aggegate) was negative and the stimulus pointless.  However a large fiscal stimulus need not involve destruction of wealth (like a war or broken window) at all.  It could just as well be large scale mobilization and spending on infrastructure and education and the like - which result in a positive increase in wealth (albeit an increase that is less than efficient).  One qualification is that this is probably only so when there is a lot of idle labor and capacity on hand.  At full employment and capacity there will be crowding out of the efficient by the inefficient and hence lesser gains.

[Erich]

Colin, I am not talking about morals and ethics here. Rather I am playing the war mongering devils' advocate. Essentially what I am getting at is that there is no more new frontier (unconquered) country on earth, so sooner or later someone will create one by means of war. So what I am in effect saying is that much of our current so-called wealth is as a direct result of previous wars (broken windows).

Are we thus not just the beneficiaries of a "broken window"?

[Colin Phillips]

Hi Erich,

I think you misread.  My contention is not on ethical grounds, but on economic grounds.

It revolves around the false statement that a bombing could "give us the opportunity" to rebuild.

My contention is that that opportunity must, logically, already exist prior to the bombing, and that that opportunity can therefore be realised through controlled demolition, which has (at least) the following economic advantages:

• Cost of demolition is borne by the property owner, not foreign taxpayers, leading to reduced waste
• Demolition is focused to target only the building designated to be destroyed, minimising the total explosive requirement
• Minimise risk of damage to potentially valuable neighbouring infrastructure
• Ability to extract all valuable assets from the building prior to the bombing
• Ability to avoid loss of skills, as occupants can be evacuated from the building prior to demolition

My challenge stands:

Can you conceive of one single counter-example, where dropping bombs on a building from planes has a greater net benefit (economically) than destroying that same building through controlled demolition?

Colin

[Stephen vJ]

WTF !!! I throw my hands up in despair !

Can someone please get Erich a copy of Bastiat ?

S.

Sent from an electronic device.

--

[Garth Zietsman]

Bastiat is superb but sometimes I think libertarians throw such references out like fundamentalist Christians quote the bible as evidence when arguing with an atheist.

It might be fun if everyone here dipped into the Kora .. oops Keynes while Erich is reading Bastiat.

By the way I did follow up the extensive readng list I was provided on the broken window fallacy.  My comment is that I am still not sure what is seen as the fallacy.  Is it the notion that window breaking creates wealth?  Is it the notion that window breaking creates employment?  Is it the notion that window breaking creates income? 

Window breaking does not create employment if everyone is already busy - it simply interupts more productive work. However if people aren't busy e.g. we aren't at full employment, then broken windows do not take people away from productive work and fixing them does create employment for those who are idle.

Window breaking does not create income when people are already busy.  What they gain from fixing windows they lose from not earning money elsewhere.  However if they aren't gainfully employed fixing broken windows does too create income.  Obviously!

Finally breaking windows obviously destroys wealth.  Fixing it not only doesn't take one past where one was before it was broken but also takes away the opportunity to create new wealth when you were busy fixing the window.  A net loss of wealth even after the window is fixed.  Then again if the window fixer was idle then a fixed broken window isn't a net loss but a return to the original state.  

But what if breaking the window is an opportunity and stimulus for an idle person to not only fix the window but to improve on the old one and add a few extras that wouldn't have occured otherwise.  Wouldn't new wealth be created?  Surely there is no improvement if you replace horrible houses that have been bombed with exact copies.  But if you replace them with improvements then there is a gain in wealth.  The replacement with improvements would not have happened without the bombing.  (Note this only applies if there are idle hands and resources available to do the replacing.)

To reiterate - the broken window is a fallacy when there is full employment and no idle resources.  The broken window fallacy is not a fallacy when there isn't full employment and there are idle resources.  I would hope libertarians could see that one could deny the broken window fallacy when the economy is below potential and accept it under normal conditions. 

Hitler's actions and the allied response (plus dropping the gold standard) was the cure for the Great Depression but only because there was a depression.  The same actions in a normal economy would at the very least be inefficient and wasteful.

No doubt someone on this forum is going to say that the economy cannot be below potential, or that the unemployed are choosing not to work - I've heard both from libertarians - but that would be a fallacy.

Garth

[Stephen vJ]

The great depression was caused by government intervention and destruction and forcing of resources to be idle. Read "FDR's folly" by Powell - a non-libertarian, non-austrian analysis of the causes of the depression.

Good point on Keynes. Mark Skousen (organizer of FreedomFest in Las Vegas) says that Keynes's general theory was intended to alleviate a short term unemployment problem, not to be applies generally and universally. In fact, that is where his "In the long run we are all dead" quote came from - he never intended his theory to be anything other than a short term fix to a specific employment problem. Sadly he mislabeled it "general theory".

Lastly resources only become idle for two reasons: they are worthless relative to all other options for applying resources or government interfered. If another application of resources is worth more than this application and a destruction of some kind made attention to the idle one necessary, then it detracts from the attention to the more important one now being neglected. If it is idle because of government rather than relative value, then one should rather remove the government cause. Two wrongs don't make a right.

S.

Sent from an electronic device.

[Jaco Strauss]

Garth, you only seem to consider the labour needed to fix the broken window and not also the miss-allocation of scarce resources in producing the new window....    

By the way, have you had a chance to think about the response re Krugman you promised me a while ago?

Greetings from Tehran

Jaco 

2013/7/17 Garth Zietsman <garth.z...@gmail.com>

[Garth Zietsman]

On Wed, Jul 17, 2013 at 7:08 AM, Stephen vJ <sjaar...@gmail.com> wrote:

The great depression was caused by government intervention and destruction and forcing of resources to be idle. Read "FDR's folly" by Powell - a non-libertarian, non-austrian analysis of the causes of the depression.

A recent survey showed that economic historians are far from agreed on the causes of the Great Depression but for what it's worth I agree that it was largely of FDR and the Feds making. 

Good point on Keynes. Mark Skousen (organizer of FreedomFest in Las Vegas) says that Keynes's general theory was intended to alleviate a short term unemployment problem, not to be applies generally and universally. In fact, that is where his "In the long run we are all dead" quote came from - he never intended his theory to be anything other than a short term fix to a specific employment problem. Sadly he mislabeled it "general theory".

That is also my understanding of it. 

Lastly resources only become idle for two reasons: they are worthless relative to all other options for applying resources or government interfered. If another application of resources is worth more than this application and a destruction of some kind made attention to the idle one necessary, then it detracts from the attention to the more important one now being neglected. If it is idle because of government rather than relative value, then one should rather remove the government cause. Two wrongs don't make a right.

I don't agree with the "only" part of this at all.  Complex dynamic systems, like free economies or ecosystems, can and do suffer from endogenous shocks.  Although government is the cause of many an economic problem (if not the vast majority of them) it isn't true that government is the source of all economic problems.  Throughout I was assuming that resources were being efficiently allocated.   

S.

[Garth Zietsman]

On Wed, Jul 17, 2013 at 7:43 AM, Jaco Strauss <jacos...@gmail.com> wrote:

Garth, you only seem to consider the labour needed to fix the broken window and not also the miss-allocation of scarce resources in producing the new window....

I don't think so.  If window resources are scarce and needed for other things then by definition one has an economy functioning at full potential and breaking windows must be a bad idea.  I was explicitly saying that if resources are idle (along with labor), and therefore not scarce, then (and only then) breaking windows could work. 

   

By the way, have you had a chance to think about the response re Krugman you promised me a while ago?

I have but be patient I have had a lot of distractions not the least of which is the impending addition to my family. 

Greetings from Tehran

Jaco 

 

[Dewald Pieterse]

On 17 July 2013 08:41, Garth Zietsman <garth.z...@gmail.com> wrote:

On Wed, Jul 17, 2013 at 7:43 AM, Jaco Strauss <jacos...@gmail.com> wrote:

Garth, you only seem to consider the labour needed to fix the broken window and not also the miss-allocation of scarce resources in producing the new window....

I don't think so.  If window resources are scarce and needed for other things then by definition one has an economy functioning at full potential and breaking windows must be a bad idea.  I was explicitly saying that if resources are idle (along with labor), and therefore not scarce, then (and only then) breaking windows could work. 

Fixing a broken window is never free, labour would need to be renumerated, idle labour would probably prefer to remain idle as opposed to working for free.

Replacement glass pane, even if in stock somewhere was produced at cost and is still not free, if donated it had cost the donator capital that was saved and not sold.

   

By the way, have you had a chance to think about the response re Krugman you promised me a while ago?

I have but be patient I have had a lot of distractions not the least of which is the impending addition to my family. 

Greetings from Tehran

Jaco 

 

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Dewald Pieterse

"A democracy is nothing more than mob rule, where fifty-one percent of the people take away the rights of the other forty-nine." ~ Thomas Jefferson
http://www.jonathangullible.com/mmedia/PoL.English.The.Philosophy.of.Liberty.swf
“A ’chocolate king’ has no power over the consumers, his patrons. He provides
them with chocolate of the best quality and at the cheapest price. He does
not rule the consumers, he serves them. The consumers ... are free to stop
patronizing his shops. He loses his ’kingdom’ if the consumers prefer to
spend their pennies elsewhere.” Ludwig von Mises, Human Action

[Garth Zietsman]

On Wed, Jul 17, 2013 at 9:18 AM, Dewald Pieterse <dewald....@gmail.com> wrote:

On 17 July 2013 08:41, Garth Zietsman <garth.z...@gmail.com> wrote:

On Wed, Jul 17, 2013 at 7:43 AM, Jaco Strauss <jacos...@gmail.com> wrote:

Garth, you only seem to consider the labour needed to fix the broken window and not also the miss-allocation of scarce resources in producing the new window....

I don't think so.  If window resources are scarce and needed for other things then by definition one has an economy functioning at full potential and breaking windows must be a bad idea.  I was explicitly saying that if resources are idle (along with labor), and therefore not scarce, then (and only then) breaking windows could work. 

Fixing a broken window is never free, labour would need to be renumerated, idle labour would probably prefer to remain idle as opposed to working for free.

Replacement glass pane, even if in stock somewhere was produced at cost and is still not free, if donated it had cost the donator capital that was saved and not sold.

Of course it's not free.  It wouldn't result in income if there was no remuneration for the labor and I'm assuming stocks of window panes in excess of current requirements.  

[Erich]

As I said before, I am not talking about morals, ethics, fair compensation, etc. I am talking about destruction, in whatever way. This can include earthquakes, tsunamis, volcanoes, meteorites and war. After that, anyone who gets to rebuild is going to be gainfully employed and make money, even when the destruction was as a result of intent. Furthermore, you as the rebuilder, gets to place the stamp of approval, i.e. culture, genes, etc. Sure, there will be losses, infringements on others' rights and so on, but that is how we have all come to be here. The broken window is just another example of simple econ 101 being true in a basic application, but when one looks at the complete picture, does it really make that much difference?

[Trevor Watkins]

I think this issue must be seen in its full social context. 

I own a house with many windows, in a city filled with unemployed glaziers with stacks of glass in stock. I deliberately break a window then observe whether I become richer. If I did become richer, somehow, I would immediately set about breaking all my other windows. But in fact, I just become  colder, draughtier and less private. I declare it a fallacy that breaking my windows makes ME richer.

Now I hire one of these unemployed glaziers to repair my window. In order to return to the status quo ante, I am now poorer by the cost of glass and labour and the glazier is richer by the same amount. The GDP of our little community is unchanged. The glazier's joy at having employment is offset by my annoyance at having a broken window.

If someone else broke my window, then in a libertarian state, I would apprehend him and force him to pay me more than the cost of repair and replacement. I would also encourage him to break the rest of my windows, particularly the cracked ones, since this would be profitable to me. No fallacy here! The vandal, however, would probably decline. If the vandal is not caught, or cannot pay, then the situation is the same as if I broke the windows myself.

In a non-libertarian state, if the vandal is caught he goes to jail, or he is fined. If fined, the money goes to the state, despite the fact that no one broke THEIR windows. If jailed, my tax money will go towards his upkeep in jail, while he is prevented from earning a living. I may also have to pay towards the upkeep of his now destitute family. Very unprofitable for all concerned, except, (surprise surprise), the state. No wonder they encourage broken windows...

Now the state steps in. It levies a tax on unbroken windows (Silly as this sounds, it was done in England in the 1700's). To avoid the tax I break my windows, or seal them up. Because of the tax, I cannot afford to hire the glazier, although part of my window tax goes to feeding his family, which no doubt makes him VERY proud. Who can doubt the value of state intervention?

Trevor Watkins

[Garth Zietsman]

Insightful Trevor.

Your broken window is a cost to you (always) and a benefit to whoever fixes it.  It could be that the values balance perfectly but not necessarily e.g. a dollar is worth more to the poor than it is to the rich.  Also what if the new window is better than the old e.g. is less scratched, is there not some net gain that wouldn't have occured had the window not been broken?

[Colin Phillips]

Hi Garth,

I'm willing to change my mind on this, really, but I honestly don't see it.  It would be very helpful for me if you could provide a "worked example".

Here is my current thinking on this issue.

Let's take the least convenient possible world, from my point of view.  

In this world, there are idle resources, and idle labour.  Specifically, there is at least enough idle capacity in construction to be able to build a new, highly valuable building on site A.

The idle labour is located near to site A, and has all the requisite skills already.  The new building would have value Y, but the construction company would charge Z to build it.

However, on site A there is currently a low value building, with value X.  X < Y.  In other words, replacing the old building with the new building would provide a net gain in total wealth.

Let's also assume that all other known potential construction projects available to this construction company have been evaluated, and the this project would result in the greatest net gain in total wealth by a significant margin, sufficiently large such that those other potential construction projects can be assumed not to exist.  It may be, for example, that only this site is in the prime location for the new building, all other sites are infeasible.

Now, if we are in this situation, where the old building is still standing, and the construction companies would dearly like to find valuable work, the Bastiat townspeople would exclaim that some civic-minded person should ignore the property owner's wishes and demolish the old building to make space for the new building.  This, they say, would provide Z income to the construction industry, as well as provide a new building of value Y.  Is that a fair characterisation?

If so, then I'm missing something.

As I see it, before the demolition (or bombing) occurred, the building owner could have been approached by the construction industry with the following offer:  "Give us Z, and we will demolish the old building and build the new building for you".  The property owner would have done some quick calculations in his head.  

Situation 1: If Y - X - Z > 0, he would have said "Go Ahead" - assuming that either the property owner had Z lying around to be able to put up the money, or had access to Z credit (See note A below).   In this case, there is no need for the "civic minded person" to demolish the old building against the owner's wishes - the owner wishes the building to be demolished.  In this case, the property owner gains Y - X - Z, and the construction company gains Z (minus the value of the idle resources employed in the construction, which, given that they were idle, we can assume to be negligible).  So, in this case, there is a net increase in wealth of Y - X, distributed (I would say fairly) between the property owner and the construction company (let's say it is a workers collective mutualist voluntaryist construction company, to be sure it really is fair :-) ).

Situation 2: If, however, the property owner calculates that Y - X - Z <= 0, he would have said "No Thanks" to the construction company, because doing so would represent a net loss to the property owner, even if the construction company considered in isolation would have earned Z if he had done so.

If the property owner has said "No Thanks", and thereafter, our civic minded person demolished the building, at that point, we register a loss of X to the property owner.  However, now the situation has changed.  The construction company's offer now looks more appealing, since Y - Z > 0.  Once the old building is gone, the new building is preferable to having just the old pile of rubble.  So, at that point, the property owner says "Go Ahead".  The property owner gains Y - Z, the construction company gains Z, meaning that there is a net increase of wealth of Y.  However, we still need to account for that earlier loss of X, so the actual net gain in wealth is Y - X.  The property owner has lost C = X + Z - Y, and the construction company has gained Z.

As I understand it, the fallacy is then following what happens to the Z that the construction company earned (the glazier buys boots, the bootmaker buys bread, the baker buys something else, etc), and not following what would have happened had the property owner retained the cost of C.  We don't know anything about the property owner's industry.  We don't know what the opportunity cost of depriving the property owner of that C could be.  Let's assume that the property owner would have spent C on some mix of consumption and investment projects, which have a total value of D.  Note that the investment projects may not be in the construction industry, they may be in another industry which is producing at full capacity, where a capital injection could have a huge impact.  They may be in a different construction company, that has grand plans for the idle construction resources, and using these resources diminishes these prospects.  The point is that we don't see this, and so we don't know.

We know that C < Z.  In the least convenient world, then, let's assume that D < Z as well.  In this case, and only in this case, would society as a whole benefit from the destruction of the old building, against the owner's wishes.  Only the property owner would suffer.

So, there is this one case where society as a whole may be better off.  However, given that the construction company is making pure profit of Z (since the resources were idle, they have no opportunity cost), and C < Z, why would the construction company not simply lower its price?  By construction, we know that Y - X - (Z - C) >= 0.  If the construction company had charged P < Z - C, instead of Z, we would be back in situation 1: Y - X - P > 0.

So, as I see it, no matter how we tweak the situation to try make the broken window fallacy not a fallacy, it remains a fallacy.  The reason it is a fallacy is that we focus on the seen (Y + Z) and ignore the unseen (X + C, or, more accurately, X + D).  Even in the case where we make all sorts of assumptions to help the fallacious thinking along, it turns out that the resources were idle because they were being sold at the wrong price.  See Note B.

Can you point out to me any way this example could be further tweaked, so that the Broken Window Fallacy is no longer a fallacy?  I need to see an example where at the end of the day,  all participants are better off (or the same) as they were before, but, at each stage of the process, they had to work against their best interests, by, for example, demolishing one building to build a better one at a higher total cost than the total value of the new building.

If not, I submit that the Broken Window Fallacy is a fallacy, because it ignores the opportunity cost.  In short, if breaking windows created wealth, we should be willing to compensate the window owners out of that created wealth.  See Note C.

Note A: This is important - if the property owner, or the wider society, do not have Z in accumulated savings, the new building should not go ahead, because there are not enough resources to complete the building.  However, in our example, we know that there are idle construction resources and labour.  Let's assume that somehow the construction workers do not need to eat during the construction process, and are therefore happy to wait to get paid only after the new building is finished, and value Y is unlocked.  So, we can assume that the construction company itself provides the financing to the business owner to do the construction.

Note B:  In the least convenient world, there would be some good reason why the construction charge would have to be Z rather than P.  Something like sticky wages, or legislated minimum wages, maybe some cultural expectation about the ratio between prices (there are reported cases of goods prices being fixed in terms of numbers of loaves of bread) which is not sensitive to changing economic conditions.  In such a case, we then need to add new costs to the equations, costs which are even more difficult to gauge.  On the one hand, we have the cost to the construction company of breaking with tradition, and offering P instead of Z.  This might entail a risk of ostracisation (e.g. a labour strike).  On the other hand, we have the cost of treating the property owner "unfairly".  This might entail some sort of capital flight risk - I know that if someone demolished my house to encourage me to build a block of flats, I would get out of that situation as soon as possible, and I would warn other people that it could happen to them.  My point is that if we keep adding extra confounding factors, we get further away from the question:  why is the Broken Window Fallacy a fallacy? 

Note C: I have not specified units here, but it is clear that I am assuming that the units carry across perfectly.  If the property owner surrenders Z utils, then the construction company gains Z utils.  This is obviously incorrect.  It could be, for example, that the property owner is a member of the evil 1%, and so would not notice a loss of C or D, but the members of the construction company would certainly notice an influx of Z.  That is true, but it doesn't help answer the question of why the Broken Window Fallacy is a fallacy - in the original conception by Bastiat, the glass owner either does or doesn't get a pair of pants along with his window, and the the glazier either does or doesn't get a pair of boots for his glazing work. We can argue about whether the glass owner values his pants more than the glazier values his boots, but the central point of the fallacy is that people compare boots with no boots, rather than boots or pants.

Colin

[Trevor Watkins]

On 17 July 2013 10:55, Garth Zietsman <garth.z...@gmail.com> wrote:

 Also what if the new window is better than the old e.g. is less scratched, is there not some net gain that wouldn't have occured had the window not been broken?

Are you not referring here to the "creative destruction" for which capitalism is often maligned? If a new and better (and possibly cheaper) form of glass becomes available, and I am willing to pay for it, I may well have to break out the old glass from my window in order to fit the new.  If someone does this for me, such as a vandal, I may even think such act a blessing, particularly if I am insured. But it is the new and desirable product that is the cause of my purchase decision, not the status of the existing window. This is pure capitalism at its best. Krugman is right when he says that the introduction of new and innovative products stimulates the economy. He is wrong (if and) when he says that destruction of existing goods is beneficial because it obliges new purchases (of possibly better products).  I am sure the vast majority of iPhone 4 owners retained or sold these phones when getting a new iPhone 5, except those willing to defraud their parents or insurance company.

Trevor Watkins - Base Software
bas...@gmail.com 083 44 11 721 - 042 293 1405 - (fax)0866 532 363
PO Box 3302, Jeffreys Bay, 6330

[Garth Zietsman]

On Wed, Jul 17, 2013 at 11:36 AM, Trevor Watkins <bas...@gmail.com> wrote:

On 17 July 2013 10:55, Garth Zietsman <garth.z...@gmail.com> wrote:

 Also what if the new window is better than the old e.g. is less scratched, is there not some net gain that wouldn't have occured had the window not been broken?

Are you not referring here to the "creative destruction" for which capitalism is often maligned?

I did consider whether the two are equivalent last night but in the end decided that they aren't.  Creative destruction is something that happens when there is full employment and the economy is running at full potential. (Note full employment does not mean zero unemployment.)

In the example I had in mind not a new kind of glass or frame but exactly the same kind, only just scratch free.

[Colin Phillips]

--

[Erich]

Why has no one brought depreciation into the picture here? i.e. at some optimal point it becomes more beneficial to destroy the old and replace the old technology even if it costs you money, but the anticipated increase in income makes up for it. Sometimes a little shove in the right direction is not such a bad thing.

[Erik Peers]

Erich, I volunteer to, free of charge, break the windows in your home. (There may not be a free lunch, but this offer is entirely free. no cost to you.)

I have references. 50 years experience since childhood.

Please send address.

[Erich]

You are welcome to break my cracked window. Then at least I will have the incentive to replace it. As I say, sometimes all it takes is a shove in the right direction. Nothing is ever black or white.

[Erik Peers]

Great. Do you live in Jhb?

[albert nelmapius]

OI WEI !!!!!
1.Has anybody actually read the real broken window fallacy?
2. Does anybody know the difference between Austrian economics and Keynesian economics?

The original parable was written long before Keynes was even born. It was not supposed to explain all of the nuances of current and future economic though in one short example.
Bastiat did not want to explain full employment or aggregates or capital goods being improved, it doesn't matter if the recipient is rich or poor, if the glass is better or worse that the old one .....

just a simple point that if a person is forced to use his money to fix a window he cannot also simultaneously use it to buy bread or shoes or a book.
So the money is moved to the person fixing the window AT THE EXPENSE  of the person who would have received the money (the baker the bookmaker and the shoemaker)
Catastrophes including broken windows, hurricanes and war redistributes wealth it does not create it.
Bastiat also wrote about "That which is seen and that which is unseen"
The casual observer can see a new window and new buildings and the building contractor getting rich. What he cannot see is who was the person who would have gotten the money who is now poorer.

Now on to Krugman.(and all other Keynesians like him.)
They believe that the economy is measured by adding up all private commerce and production and sales, then you ADD all "public expenses"  government spending which will include stimulus money- to come up with some meaningless number called GDP -with that formula of course the so called "economy" will improve.

Austrians believe the economy is only that part which is freely produced with private money and effort... MINUS what the government extracts in taxes.The more taxes the less private money left to stimulate and grow the "real" economy and create "real jobs" not just government cronies.

The way the broken window fallacy applies is this. The government does not HAVE any money. They first have to confiscate it from the productive citizen in the form of taxes (therefore redistributing money that would have been used to reward a productive citizen selling a valuable good like an I Pad.)

Apple does cause the economy to expand by adding another new valuable product to the economy that can then be bought VOLUNTARILY by willing buyers.
Only government stimulus does NOT- it just redistributes. It is a net COST not a net gain.

[Stephen vJ]

Exactly !

S.

Sent from an electronic device.

--

[Stephan Viljoen]

someone should make a nice infogram to show this...you know ons bloubulle can only understand pictures and soundbites...

[Garth Zietsman]

Now on to Krugman.(and all other Keynesians like him.)
They believe that the economy is measured by adding up all private commerce and production and sales, then you ADD all "public expenses"  government spending which will include stimulus money- to come up with some meaningless number called GDP -with that formula of course the so called "economy" will improve.

Actually GDP = private consumption + investment + governmnet spending + exports - imports (at market prices).  The tax used in government spending is not part of the private consumption or anything else so there is no double counting.  It is not only Keynesians who go by this definition but pretty much everyone except Austrians (assuming you are right about them.) 

Austrians believe the economy is only that part which is freely produced with private money and effort... MINUS what the government extracts in taxes.The more taxes the less private money left to stimulate and grow the "real" economy and create "real jobs" not just government cronies.

This definition goes much further than implying government is inefficient it says government doesn't do anything except collect tax.  Doesn't seem plausable even if one believes they are largely parasitic. 

The way the broken window fallacy applies is this. The government does not HAVE any money. They first have to confiscate it from the productive citizen in the form of taxes (therefore redistributing money that would have been used to reward a productive citizen selling a valuable good like an I Pad.)

Apple does cause the economy to expand by adding another new valuable product to the economy that can then be bought VOLUNTARILY by willing buyers.
Only government stimulus does NOT- it just redistributes. It is a net COST not a net gain.

I think you are mistaken in your contention that government (and the Fed) can do nothing but redistribute or that voluntary transactions are the only way to create value.  If government stimulus is merely a redistribution then it's effect must be roughly neutral rather than a cost.

As far as I can make out the essential difference between Keynes and the Austrians is in what they regard as real economy leading up to and during recessions.  Austrians think there is some fake economic activity in the lead up and that the economy falls to it's real capacity in the recession.  Keynesians think the economy is real in the buildup and that it should continue on and therefore the gap between the production if it had continued and what it is during the recession is excess capacity.  In other words Austrians don't think potential capacity exists and Keynesians do.

A related difference (as far as I can tell) is that Keynesians accept the reality of demand shocks (particularly shortfalls) caused by a shock in the demand for money i.e. to hold money, and Austrians don't. 

It is difficult to test these claims but what evidence there is is a lot closer to the Keynesian position than the Austrian position.  In this regard note that high inflation and interest rates in the US continue not to emerge a year on from when I last mentioned this. 

[albert nelmapius]

Garth,
The arguments about the differences between Austrians, Chicagoans and Keynesians has been going on for decades and it wont be resolved in one or two posts.
Lets start a new thread about that to not hijack this Krugman story.

As for our debate about Krugman and Bastiat:

You and others keep using the number for GDP as synonymous with "the economy"
I have no time for textbook definitions of what statisticians for the government think.
 
I think of the free market economy as the total of all free transactions and trades done willingly between willing participants.
The guys that have the most valuable products and services gets the most money so he can grow and expand and benefit more people.
The guy who's product is not desirable dies on the battlefield and loses his own money, gets up dusts off his knees and tries something else this time more carefully.Maybe he competes with the other successful guy forcing both to become more efficient and lowering costs for the consumer.
The market corrects itself and if not interfered with, forever expands, improves quality of life
Taxes sabotages this process and you bet your bippy I believe the government does nothing but harm.


To illustrate:
The Smith family live on a compound.
Grandpa has a fruit stand selling his produce, (makes $100 per week).grandma does cooking and catering as an additional income($100 per week), Mom is a teacher($100 per week) and Dad is whatever a plumber or something($100 per week).
Little boy and little girl are not employed but grandpa gives them each $5 a week to take out the garbage and  clean the pool.

By your definition the GDP is $410 (add income from all 4 adults and add income for kids- disregarding that income for kids has to be earned by one of the adults first)

I ignore GDP but I calculate that free market enterprise produced $400 for this family.
After expenses (which includes the salary to the kids, housing expenses, food, water and electricity) there might be a net profit of $100 per month.
They might choose to consume $50 on consumables like cookies, beer, vacation jewelry, and reinvest $50 in infrastructure/capital goods to increase future income. Grandpa buys a donkey to speed up fruit production and delivery, grandma buys a pressure cooker to prepare food quicker. The free market works.

A smart Keynesian economist comes along and says he can "stimulate" their little economy with fairy dust , make everybody richer and nobody poorer.

Why don't you increase the little boy's and the little girls salary by $50 per month each. They will not only have enough money to spend on twice the amount of candy for themselves, they will even be able to buy a video game buy dad some beer and mom an extra sweater.
 The Keynesian does his math and calculates GDP to be the old $410 plus the new $100 in "stimulus government spending" so now it is written in the books as $510 GDP. They declare a new era of lasting prosperity.

The Austrian says not only has the total income of the productive citizens not changed, the redistribution has damaged the future income for the group.Whenever Austrians see a crack boom cycle they warn, cover your asses dive for cover a crack bust is coming.
But now comes smart Keynesian (Krugman) and says, look I know its been a decent boom cycle for a while even though grandpa broke his back from not having a donkey and grandma lost some accounts from not having a pressure cooker but lets fix it. Why don't we give each of the children a credit card with a million dollar line of credit. Can you imagine how much we can increase our calculation of GDP?
What could possibly go wrong? Don't be stupid, stimulus works, even if you have to borrow money to get it. Our children's children can pay the bill.(actually Keynes said I don't care who will pay the bill in the long run I will be dead before the bill come due)
Austrians say, somebody F*ed up, the only way out is to tear up the credit cards, live on less food water and electricity until the bills are paid and then hopefully we can invest in capital goods and expand the economy again.

[Trevor Watkins]

On 2 August 2013 08:20, Stephan Viljoen <njsvi...@gmail.com> wrote:

someone should make a nice infogram to show this...you know ons bloubulle can only understand pictures and soundbites...

Just read a Dennis the Menace comic. Have you ever noticed how happy the old neighbour is every time Dennis breaks his window?

Trevor Watkins -

[Garth Zietsman]

On Fri, Aug 2, 2013 at 2:58 PM, albert nelmapius <sac...@earthlink.net> wrote:

Garth,
The arguments about the differences between Austrians, Chicagoans and Keynesians has been going on for decades and it wont be resolved in one or two posts.
Lets start a new thread about that to not hijack this Krugman story.

I only mentioned it because you seemed to think it relevant. 

As for our debate about Krugman and Bastiat:

You and others keep using the number for GDP as synonymous with "the economy"
I have no time for textbook definitions of what statisticians for the government think.

That is fair enough but why should they or those of us who disagree with you take your point of view seriously?  Most economists outside of government and academia do take GDP seriously (while recognizing it's limitations.)  Governments do produce things e.g. roads, and provide services e.g. peace and education.  Granted these probably entail inefficiencies, and a national income less than it could be, but they are nevertheless real values and should be counted.  I must say though that it would be useful to look at two separate growth rates a) of government expenditure and b) of GDP net of government expenditure. An interesting statistic would be the correlation between the two.  Your argument would entail a negative correlation between government expenditure growth and lagged GDP net government growth - both cross nationally and longitudinally within countries.  I think we agree that the correlation between prior and current private growth and government growth will be positive.

 
I think of the free market economy as the total of all free transactions and trades done willingly between willing participants.
The guys that have the most valuable products and services gets the most money so he can grow and expand and benefit more people.

I think this should be a metric we use to see how free an economy is (and that as a percentge of GDP it should be high) but as I said before I think what the government produces should be counted because it is real stuff and services we do use.

 

The guy who's product is not desirable dies on the battlefield and loses his own money, gets up dusts off his knees and tries something else this time more carefully.

This is in one way a funny metaphore.  Krugman likes to talk about zombie economics and here inadvertantly you play right into his hands.

 

Maybe he competes with the other successful guy forcing both to become more efficient and lowering costs for the consumer.
The market corrects itself and if not interfered with, forever expands, improves quality of life
Taxes sabotages this process and you bet your bippy I believe the government does nothing but harm.

I have argued before that free markets aren't always self correcting toward some desired equilibrium.

WRT government always doing harm I lean toward agreeing with you if you mean by that that government interference always results in a lower product that would have happened without the intrevention. I think that is usually the case but not inevitably.  If however you are saying government always makes fo negative values e.g. wars, shortened life expectancy and the like, I disagree.

To illustrate:
The Smith family live on a compound.
Grandpa has a fruit stand selling his produce, (makes $100 per week).grandma does cooking and catering as an additional income($100 per week), Mom is a teacher($100 per week) and Dad is whatever a plumber or something($100 per week).
Little boy and little girl are not employed but grandpa gives them each $5 a week to take out the garbage and  clean the pool.

By your definition the GDP is $410 (add income from all 4 adults and add income for kids- disregarding that income for kids has to be earned by one of the adults first)

No by my definition GDP is $400.  One looks at grandpa's consumption not his earnings. One counts income after tax and net of savings as consumption and not income before tax. Any savings usually becomes investment and gets counted under investments.  I did try to show before that there isn't that kind of double counting in GDP calculations.

I suspect however that your definition would return a GDP of $390.

I ignore GDP but I calculate that free market enterprise produced $400 for this family.
After expenses (which includes the salary to the kids, housing expenses, food, water and electricity) there might be a net profit of $100 per month.
They might choose to consume $50 on consumables like cookies, beer, vacation jewelry, and reinvest $50 in infrastructure/capital goods to increase future income. Grandpa buys a donkey to speed up fruit production and delivery, grandma buys a pressure cooker to prepare food quicker. The free market works.

A smart Keynesian economist comes along and says he can "stimulate" their little economy with fairy dust , make everybody richer and nobody poorer. 

Why don't you increase the little boy's and the little girls salary by $50 per month each. They will not only have enough money to spend on twice the amount of candy for themselves, they will even be able to buy a video game buy dad some beer and mom an extra sweater.
 The Keynesian does his math and calculates GDP to be the old $410 plus the new $100 in "stimulus government spending" so now it is written in the books as $510 GDP. They declare a new era of lasting prosperity.

This seriously misrepresents Keynesianism.  A Keynesian would NOT try to stimulate such an economy because it is running at full potential and recognizes that any attempt to do so will result in inflation.  The Keynesian would say the place for a stimulus is a drop in agregate demand such as when everyone wants to hold cash and so everyone is buying less so now producers can't sell and everyone consumes less.  The idea of a stimulus at this point is to repalce the withheld cash so that producers can sell as before and people can consume as before.  If the stimulus is monetary than that is Friedmans's idea not Keynes whose idea was fiscal stimulus.  Fiscal stimulus wouldn't work in an economy running at full potential because it diverts labor and resources that will be better used elsewhere.  However if previously productive labor and resources (existing factories, extracted ore etc) is now idle then if the government (or anyone) puts them to work it has to be a net plus so long as what they produce is what people will use.

I persistently run into what I think is a lack of appreciation of the difference between a normal and a demand driven recession among libertarians and conservatives.  For some reason you don't recognize that the economy is not always running at full employment and that stimulus is only justified and called for when it isn't.  This may be because Austrian economics does not recognize the possibility of an economy running below potential.  If so we should be debating the reality or otherwise of a potential shortfall.

Another thing I think it important to distinguish is how we would like the world to be and how it really is.  For example libertarians note that if global warming is real it sems to give socialists ammunition in their case to reduce liberty and since that is bad they would really like it not to be true.  Socialists of course want it to be true.  What happens is that far more socialists than libertarians think it is true.  The fact is that whether global warming is a fact is not dependent on what these two groups want.  One could be a socialist and not buy global warming or a libertarian and accept it.  Likewise one can accept Keynesian analysis and still be a libertarian in the sense of being for less government and less intervention for liberty's sake. 

[albert nelmapius]

1.OK OK you got me, they guy doesn't die, his company does.
2.Again the parable is an oversimplification to prove my point that the money for the stimulus has to first be produced by producers, then confiscated as tax (or borrowed from future tax) causing a negative void in the economy, before  it is granted back to some favored industry. It was not meant as an example of "when" a stimulus would be suggested by Keynes.
3.Typically on libertarian websites there is fairly good agreement on Austrian points of view, so I assumed certain arguments as given. Clearly I shouldn't have.

I need to know which part (if any) of Austrian economics and the Austrian business cycle you agree on. Also is the gist of your economic thinking Keynesian or do you have reservations on some things?

Unlike politics and  libertarianism, economics is supposed to be wertfrei or value free. Even if I have a bias for what I like it to be, the argument should go over whether it will or won't have that effect, not whether that action is just or moral.
If we don't agree on what can be used as facts we will forever run around in circles.

Austrians believe the recession is caused by credit expansion. It doesn't matter if it is through monetary policy or fiscal policy or suppression of interest rates or if the public is depressed or suffering from "malaise". Once it crashes there will always be reduced demand and idle resources.
So characterizations of "demand" recessions and"normal" recessions are to me not useful.
The economy is NEVER running at full employment. it fluctuates from second to second based on a myriad of inputs. It is not an almighty state's job to manipulate this,  - clearly in my opinion but not yours.
I can certainly create full employment by borrowing from China and paying each and every citizen a million dollars to dig holes in the backyard.Not good for the economy though.

If we blindly accept Keynes or even some neoclassical economics, then by manipulating formulas, you are clearly going to prove on paper that stimulus works.

 So we have to confront the differences in economic thought to debate.
What can we take as a basis for agreement?Then I can go study up reluctantly on Keynes to debate against his arguments. (ever read Hazzlit's refutation of Keynes?)

[albert nelmapius]

Part two:The "value" of government.
 I could not confront that in the last post because multiple arguments on the same page make it difficult to concentrate.
Clearly I think that the government does not contribute to the free market, only detracts.Which is not the same as saying they don't do anything.
You think it does some valuable things.
We are using two criteria- contribute to growth and valuable.

Exercise is valuable, smiling is valuable, prayer is valuable to some, reading is valuable, being forgiving is valuable- fine I agree They fall in the realm of psychic profit which definitely is valuable enough for some people to pay money for. But I find it hard to put psychic value in a calculation of the economy and I don't easily see how it is a large contributor to capital goods- the only thing I believe creates a larger economy in the long run.

Again my argument the government has no money. It has to wait for a productive citizen to produce it, then confiscate it , then spend it on the public good.It is not just a matter of efficiency. The dollar would have been spent on roads   and schools and libraries amongst other things if the state did not provide it anyway. (lets leave army and courts for another day) but in private enterprise it would not be a cost to the taxpayer AND it would have provided profit for expansion.
( hence my point that government run public services are not just a shuffling from the left pocket to the right pocket- it has actual costs that detract from a growing economy)
The state also creates monopolies and crowds out competition. Who knows if the road making industry and the schooling industry would not have evolved with unheard of speed- like the cellphone industry after deregulation.
But the savings in efficiency and crowding out of competition and the profits would have been reinvested in capital goods making the economy compound returns.
The "socialist calculation problem" of Mises says you have no way of calculating the cost or opportunity lost of your school run by the government, so you will never know if it has a positive or a negative value.

( I did not wish to imply that governments shorten lifespans, they just steal from opportunity costs)

[Frances Kendall]

Just finishing Haidt's new book on the evolution of morality - The Righteous Mind.  It is very enlightening and I strongly recommend it for those of you who are interested in the evolution debate.

It throws considerable light on why so few people are libertarians.

You might be interested in the website where he is doing research: http://www.moralfoundations.org

[Erik Peers]

Significant that they see the opposite of liberty as oppression. This word is popular with the masses in SA. I see this a a useful continuum to describe the Libertarian Party. That by supporting liberty we ensure that we will never again be oppressed.

I think that there is an emotive appeal to not being oppressed. We first engage this emotion, then lead them to liberty.

[Leon Louw (gmail)]

There's an unfortunate catch; yes Erik, people don't like being oppressed, but my impression is that it's uncommon to care about others being oppressed.

How many people think twice about getting so-called government money, protection or contracts; or controls of countless kinds, from tobacco ad bans to the Eskom monopoly?  How many think of what governments routinely do as indistinguishable from private people doing liklewise?

Not many I fear.  Milton Friedman said something along these lines:

Academics and journalists want freedom for themselves but no one else; they want others to be forced to pay for what they do which is to propose how others should be controlled and taxed, especially to pay for what they do, but they are a special case in need of academic and press freedom.

Business people want the opposite; they want freedom for everyone else -- they must compete and have no protection or subsidies -- yet they are a special case in need of protection, subsidies and government contracts.

I don't recall him saying where workers and consumers fit in, but they too lobby for power (ie oppression) to be wielded against others for thier benefit.  They condone and espouse governments doing what would be a terrible crime of done privately.

Leon Louw

work:  +27-11-884-0270

mobile:  +27-84-618-0348

www.freemarketfoundation.com

[Erik Peers]

Leon, true. However how many South Africans have described themselves as oppressed? My view is that it numbers in the millions. They may not understand liberty, but they do understand opression. They also know the word. By positioning liberty as the opposite of oppression we stand a greater chance of capturing the hearts and imaginations of the voters, than if we try to explain libertarianism off first bat.

The whole concept that less control gives more freedom is an anatema to most. Most people want more laws prohibiting what they don't like.

A lot of libertarian concepts require a second order of thinking. We need something that will appeal emotionally, and intellectually on the first level. Oppression is linked to suffering (another word popular in the South African vernacular).

Liberty is what removes oppression, and thereby suffering. It's a powerful moving message.

We need people to vote who never have, and maybe never will read a book about even the most basic of price mechanisms and self clearing markets.

Viva liberty!

[Leon Louw (gmail)]

What Frances writes is nonsense.  There is nothing about Haidt's thesis that explains why so few people are libertarians.

Libertarians are typically for most of Haidt's values.  They are typically motivated if not obsessed more than others by:

1 (care)

2 (fairness)

3 (liberty)

4 (loyalty)

6 (sanctity) also applies to many.

Some are even for 5 (authority), though this is the only one that could be juxtaposed with liberty (depending on definition).

So few people are libertarians simply because thy favour coercion as a means of promoting ends, whereas libertarians prefer co-operative means. 

[Frances Kendall]

If you read the book -- The Righteous Mind -- you will see that Haidt bases his conclusions re the values conservatives, liberals and libertarians subscribe to on numerous surveys he and his colleagues have undertaken.

This is not my interpretation of Haidt's thesis, I am simply relating his conclusions. 

[Erik Peers]

What happened to oppression? Have you just destroyed it by omission?

[Leon Louw (gmail)]

Oh, I agree with you tactically.  I was making a philosophical point, which I realise subverts a discourse on political strategy.

You are absolutely right to search for terminology that is conducive to attracting support.

In the same vein I recommend a platform promising such cosmic virtues as decent housing for all, decent jobs for all, doubling living standards of the poor every 5 years, environmentalism, consumer protection, universal health care, and so on.  

What distinguishes libertarians from others is not whether such outcomes are desirable, but how best to achieve them (ie liberty not coercion).

[Frances Kendall]

I agree with you re oppression Eric -- and in fact Haidt argues that the hatred of oppression gave rise to the evolution of the liberty/oppression moral foundation.

[Garth Zietsman]

You are wrong about that Leon.  There is a very large data base of people who identify as libertarians and they do score low relative to others on care, fairness, loyalty and sanctity.  There is no question about it. We may know a few exceptions but most people who identify as libertarian are as Frances said.  See here and click on "libertarian psychology" or just look for the libertarian studies.

[Erik Peers]

Cool, we are back on the same page.

I think oppression is far cooler a word than coercion (which I have always seen as a euphamisn anyway).

There is in addition, such a thing as legitimate authority, and in fact some authority (eg a judge in a civil court) is necessary for liberty. Therefore authority and liberty are not opposites. However we can argue that there is no such thing as legitimate oppression, which is the opposite of liberty.

[Erik Peers]

Leon, it is great that you have these values at your core. However not so for many Libertarians. Only recently there was an extensive debate on this very forum of whether we should let the baby in the swimmimg pool drown.

I'm with Garth on this one.

[Garth Zietsman]

Hey I'm just reporting what a very large representative sample of libertarians say about themselves.  I don't think this value structure is necessary to be a libertarian nor is it inevitable.

I also don't believe those libertarians who argued against being responsible if they let a baby drown don't care or that they wouldn't actually save the baby.  It was more a case of biting the bullet of absurdity in order to preserve a principle. 

[albert nelmapius]

NOT FAIR. You totally highjacked my Krugman debate with Garth and I was just starting to have fun.
OK so we are talking about libertarian mindset and then it morphed into marketing libertarian ideas.

Let me put my marketing hat on:
I too immediately resonated with the oppression sentiment but beware.... one of the biggest mistakes a marketer makes is to write copy that resonates with himself.
A dentist can describe his services in the most academic and clinical way ..... and all he will get is other dentists as customers.

If we use slogans that are most attractive to us, we might only get attention from similar thinkers.. who might have contacted us anyway. We need to survey voters out there and find out what resonates with them or in marketing speak "what keeps them up at night"

Second point is you have to have a UNIQUE selling proposition in marketing
If you base it on nebulous words like housing, jobs, healthcare... you run the risk of Julius Malema hijacking your platform (oops he already did that)

There is nothing wrong with using those words to attract attention but after that you must in one sentence be able to distinguish yourself.

Lastly we may all have some traits in common like curiosity and diverge on empathy etc. but that should not matter when it comes to marketing or our platform.
The libertarian party believes in liberty for all not only ourselves, that includes Marxists, fundamentalists, radicals, racists, angels, priests and nuns and even Keynesians.
Once we have their attention we need to teach them that THEIR liberty and right to teach THEIR philosophy is only secured if we ALL HAVE EQUAL RIGHTS AND PROTECTION

[Frances Kendall]

Albert you need to title your thread Krugman or whatever - there are often several threads branching off.

Sent from Frances iPhone

[Garth Zietsman]

On Fri, Aug 2, 2013 at 8:47 PM, albert nelmapius <sac...@earthlink.net> wrote:

1.OK OK you got me, they guy doesn't die, his company does.
2.Again the parable is an oversimplification to prove my point that the money for the stimulus has to first be produced by producers, then confiscated as tax (or borrowed from future tax) causing a negative void in the economy, before  it is granted back to some favored industry. It was not meant as an example of "when" a stimulus would be suggested by Keynes.

I know.  I just that the parable would have made Krugman smile which I don't think was your intention.

 

3.Typically on libertarian websites there is fairly good agreement on Austrian points of view, so I assumed certain arguments as given. Clearly I shouldn't have.

I need to know which part (if any) of Austrian economics and the Austrian business cycle you agree on. Also is the gist of your economic thinking Keynesian or do you have reservations on some things?

I read Human Action, Liberalism & The Anti-Capitalist Mentality by von Mises, For a New Liberty by Rothbard, and The Road to Serfdom, Individualism and Economic Order & Fatal Conceit by Hayek.  All of these were some time back so I'm rusty on the details.  A have a fair working knowledge of Austrian business cycle theory.  I don't think I am a Keynesian for accepting what he contributed to mainstream economics any more than I am a Hayekian for accepting spontaneous order.  I certainly do have problems with some Keynesian models.  Certainly I wouldn't be so one sided about it as Krugman is.  I like Tyler Cowan and Greg Mankiw more. 

Unlike politics and  libertarianism, economics is supposed to be wertfrei or value free. Even if I have a bias for what I like it to be, the argument should go over whether it will or won't have that effect, not whether that action is just or moral.
If we don't agree on what can be used as facts we will forever run around in circles.

Mises may have argued that economics is value free but it sure as hell isn't.  One can easily see why libertarians would prefer Austrian economics to be correct and Keynesianism false - and liberals the reverse - and by en large if you did a survey that's how it would be, with the odd exception like me and maybe Brian Caplan. 

Austrians believe the recession is caused by credit expansion. It doesn't matter if it is through monetary policy or fiscal policy or suppression of interest rates or if the public is depressed or suffering from "malaise". Once it crashes there will always be reduced demand and idle resources.
So characterizations of "demand" recessions and"normal" recessions are to me not useful.

I'd say yes sometimes the sudden mass desire to hold onto cash and the decline in aggregate demand is a function of unreasonable credit and 'malinvestment' but sometimes it isn't.  Also recessions due to supply shocks e.g. a massive spike in oil prices, do exist and are different to recessions due to demand shocks.  In a supply driven recession you will expect a shortage of supply relative to demand and therefore inflation plus unemployment.  In a demand driven recession you expect low inflation or even deflation with unemployment.  What I'm saying is "it depends" a lot more than Austrian economics or for that matter Keynesian economics says. 

 

The economy is NEVER running at full employment. it fluctuates from second to second based on a myriad of inputs. It is not an almighty state's job to manipulate this,  - clearly in my opinion but not yours.

Full employment does not mean everyone is employed.  It means employment is as high as it can be without raising inflation - typically 5% unemployment in the US but as Keynes showed several different levels of unemployment are consistent with this view i.e. multiple equilibria.  I am more sympathetic with your view that it isn't government's job to manipulate this than you think.  It is here where my view of how I wish the world would work clashes with my view of how it does.  I recognize that government manipulation is a violation of liberty and I think that is bad.  That makes me a libertarian.  On the other hand I think a monetary or fiscal stimulus would work on some recessions and do an enormous amount of good, and that often the only entity that could provide a stimulus is government.  So I have to weigh the two against each other.  (I haven't figured out a free market way for a stimulus to occur.)  As violations of liberty go I don't think stimuli during recessions are all that serious particularly if it works through automatic stablizers.  I think violations of free speach and occupational licensing are much worse.  I understand if other libertarians disagree on that evaluation but will disagree if they think a stimulus won't work or that it will make things worse down the road..

 

I can certainly create full employment by borrowing from China and paying each and every citizen a million dollars to dig holes in the backyard.Not good for the economy though.

Sure. 

If we blindly accept Keynes or even some neoclassical economics, then by manipulating formulas, you are clearly going to prove on paper that stimulus works.

I agree, which is why I like empirical work - imperfect as it is.  On this score Krugman has a point that the models he uses are coming through the current crisis far better than those predicting high inflation and soaring interest rates.  I am not sure whether Austrians are part of the latter group.  Many self professed Austrian economists say the theory doesn't predict high inflation but many Austrian economists have been loudly prediction hyper-inflation 'any day now' for years.  I also have copies of some studies directly testing some specific predictions of Austrian business cycle theory which conclude that the predictions don't hold up.  I do also have theoretical reservations about Austrian business cycle theory.

 So we have to confront the differences in economic thought to debate.
What can we take as a basis for agreement?Then I can go study up reluctantly on Keynes to debate against his arguments. (ever read Hazzlit's refutation of Keynes?)

Not Hazzlit directly but have seen references to his work in a review of a book from one of the Misis.org crowd.  All I can say is that the arguments advanced in that book amounted to - Keynes is wrong because he disagrees with the Austrian analysis.

I suggest a few possible areas of debate

- the issue of whether the concept of potential GDP somewhat above actual GDP in recessions is real or not.  

-  whether demand shocks can occur without credit bubbles. 

-  does malinvestment make sense.

Suggest some particular issue you have with Keynes or Krugman.

Hopefully we will circle back to broken windows.

[Garth Zietsman]

On Fri, Aug 2, 2013 at 9:18 PM, albert nelmapius <sac...@earthlink.net> wrote:

Part two:The "value" of government.
 I could not confront that in the last post because multiple arguments on the same page make it difficult to concentrate.
Clearly I think that the government does not contribute to the free market, only detracts.Which is not the same as saying they don't do anything.
You think it does some valuable things.
We are using two criteria- contribute to growth and valuable.

I for one thing think government makes markets possible (free or otherwise).  It is government that defines and creates property rights for a start.  It is government that keeps people from preying on each other's property and means of making a living.  Yeah I know many libertarians argue that that function need not be served by government but I find the arguments around the incentives of private competing law keepers very unconvincing.

Exercise is valuable, smiling is valuable, prayer is valuable to some, reading is valuable, being forgiving is valuable- fine I agree They fall in the realm of psychic profit which definitely is valuable enough for some people to pay money for. But I find it hard to put psychic value in a calculation of the economy and I don't easily see how it is a large contributor to capital goods- the only thing I believe creates a larger economy in the long run.

I'm just saying that if a private orchard produces 5 million apples per year and gets taken over by government who procedes to produce a paltry 1 million apples per year, that 1 million is still part of the economy and it is appropriate to count them even though GDP is now 4 million apples poorer than it would have been. 

Again my argument the government has no money. It has to wait for a productive citizen to produce it, then confiscate it , then spend it on the public good.It is not just a matter of efficiency. The dollar would have been spent on roads   and schools and libraries amongst other things if the state did not provide it anyway. (lets leave army and courts for another day) but in private enterprise it would not be a cost to the taxpayer AND it would have provided profit for expansion.
( hence my point that government run public services are not just a shuffling from the left pocket to the right pocket- it has actual costs that detract from a growing economy)

I agree - if you see my apple example - there will be a net loss if government does it rather than private enterprise but government expenditure still has to be counted.

 

The state also creates monopolies and crowds out competition. Who knows if the road making industry and the schooling industry would not have evolved with unheard of speed- like the cellphone industry after deregulation.

I agree.

 

But the savings in efficiency and crowding out of competition and the profits would have been reinvested in capital goods making the economy compound returns.

I'm still agreeing.

 

The "socialist calculation problem" of Mises says you have no way of calculating the cost or opportunity lost of your school run by the government, so you will never know if it has a positive or a negative value.

Agreeing still.  I would however raise the possibility that there are some public goods that people want but aren't in the interest of private enterprise to provide. 

[albert nelmapius]

Good I like those debating points but I want to start before that with
1. Wertfrei
2.Say's law
3.Price inflation vs general inflation

I did not say that economists or mathematicians or teachers WERE value free,I was saying that the science of economics like the science of mathematics has to have value free laws that can be used by everybody, to distinguish it from opinion, which has to be substantiated first.

All of us and not in the least Keynes have opinions. He was very anticapitalist, pro Marxist, pro fascist big believer in centrally planned economies. That does not prove his theories were wrong. But it makes it likely that he could start off with arguments we can agree on and then morph into psuedo science. In my opinion he did, starting with claiming to refute Say's law.

In a nutshell I think Say's law says: people produce (like a pair of shoes) in order to buy something else (like pizza or a movie) so his production is the driving factor for "demand" in the economy.The more shoes he makes and the less you tax him, the more the economy is "stimulated" I accept that as a law like 2+2=4 It implies that there can be no such thing as significant hoarding, or oversupply or over demand or liquidity traps, or sticky wagesin  the long run (of course it can happen temporarily in pockets and sectors of the economy)
If Keynes accepted that it would preclude him from being able to use his central planning ideas. After that in my opinion, his formulas started having a built in value bias.
That is one reason Keynesians have such a fetish for GDP. It is a number that they can calculate and then plug into their little central planning computer as a constant to make calculations on how and how much to screw with the free market. The number can be manipulated in oh so many ways depending on what point you want to prove.

Another problem with GDP is that it is a snapshot of a particular moment in time. Yet they don't use it to do calculations on just that day, they use it to make  future predictions. Their model tends to calculate "consumption" as the measurement of the economy. Yes consumption is roughly equivalent to the economy on that day, but it is not a good predictor of whether the economy will  grow, like private profits reinvested in capital goods to make future production more efficient.
That formula for GDP you showed me was the formula for calculating the GDP in a MIXED economy, which has the fact that the government has to interfere, already assumed and built in to the formula.
So now they can say most of the factors are stuck  (because of animal spirits) except for government intervention.
We agree that you can manipulate that GDP with an influx of stimulus and sure it will seem to improve consumption like their formula says.
But thet does not take the time factor of sustainabilty in account.
It is like throwing gas on the fire that now  burns out quicker.
For me what GDP is on a Wednesday or on a Friday is not that useful as opposed to how many new shoemakers were allowed to stimulate the economy by making money through production not by stealing from another taxpayer. Another missing calculation is dropping prices to clear the market. If a producer miscalculated and overproduced,and now is sitting on a surplus (and that includes a surplus of labor) It is a signal that the asking price is too   high. The asking price for the surplus in product or labor needs to drop to clear the market. Keynes calls that "idle resources" so he can call in his pals in government to save the unions from lower wages.
As an exercise, play along with me.
Over the years a market for pink widgets at $100 each has gotten to stabilize at about 75 units sold per day..
What would happen if I used a helicopter or the fed or whatever to drop $10,000 per day into the laps of those buyers without simultaneosly increasing the production of pink widgets?
(hint it doesn't matter if youre a Keynesian or an Austrian)

[Erik Peers]

Just on a point of information, GDP is not a snapshot,  it is a measure of national income and is measured over a 12 month period.

--

[albert nelmapius]

Well I admitted that I don't spend much time studying GDP so instead of being a snapshot of a particular timeslot, it turns out that it is a snapshot of a particular time period with a finite end date.
It doesn't take into account if the day before or the day after the fed just pumped $80 billion.
 into the system.
I don't think it changes my point. Just comment on what else I said.

[Stephen vJ]

The biggest problem with GDP in my view is that it aggregates things which cannot be compared to each other. If we produced R100mil worth of rainbows and unicorns last year, but spent R102mil on nooses and arsenic pills this year, it would seem as if growth was 2%, when in fact the standard of living would have degraded significantly.

S.

Sent from an electronic device.

[Frances Kendall]

True but liberals & conservatives probably wouldn't debate the issue at all  - they would simply agree it is deeply immoral to let the baby drown and if you walk on past you are clearly responsible.

Leaving all pre-frontal tortuous arguments aside this is intuitively true for any human who is not a psychopath.

Sent from Frances iPhone

[Frances Kendall]

What fascinates me about the Darwinists -- Wilson, Haidt et al -- is they are saying that all aspects of our morality are genetically encoded, and our moral thinking is primarily unconscious or intuitionist like all other animals.

Culture turns up the volume of some of the moral intuitions higher than others. Among the WEIRDS: Western Educated Industrialised Democratic Societies to which we belong is a strong emphasis on individual action and responsibility, but the WEIRDS  make up only, I think Haidt said, about 20% of the world's population. The others see themselves more as members of inter-connected groups.

When a stimulus is perceived the unconscious part of the brain -- let's call it intuition -- responds instantaneously.  Then the prefrontal cortex -- let's call it the reasoning part of the brain -- confabulates or acts as a lawyer to justify the intuition. This always happens.

Further, when we repeatedly make an argument that seems good to us the brain responds with a little puff of dopamine which, when it happens repeatedly,  builds up an addiction. This is how all addictions work -- repeated pleasure from a stimulus eventually makes anything connected with the stimulus trigger the behaviour.

So guys, we become addicted to the positions we intuitively hold to be true and provide complex arguments to support.

[Trevor Watkins]

On 3 August 2013 16:50, Erik Peers <erik...@gmail.com> wrote:

I think oppression is far cooler a word than coercion (which I have always seen as a euphamisn anyway).

I disagree, Erik. Coercion has a very specific meaning, at least for most libertarians. When one person or group uses force against another person or group to achieve their ends, that is coercion. Oppression does not necessarily imply force by one against another. For example, Leonard Cohen uses the phrase "oppressed by these figures of beauty" in one of his songs. Many people feel oppressed because they have no jobs, or houses, or brains, or beauty. It does not mean that coercion is involved - just unfortunate conditions.

I often feel quite oppressed by the need of some to redefine clear and concise terms.

Trevor Watkins

[Trevor Watkins]

On 3 August 2013 17:01, Erik Peers <erik...@gmail.com> wrote:

Only recently there was an extensive debate on this very forum of whether we should let the baby in the swimmimg pool drown.

The debate was NOT about whether we should let the baby drown. The debate was about whether we should hold liable anyone (and everyone) in the vicinity of the drowning baby for not saving it. This is not a fine philosophical distinction - it is the fundamental point of the debate. I seem to remember the debate faded away when no one could offer a decent definition of how far out to sea the baby had to be before liability disappeared for the onlookers. 

 IF you concede that onlookers at an unfortunate event are liable through no fault or involvement of their own, then you must concede they are also liable for not training the baby's parents better, for not erecting fences near the water, for not teaching the baby to swim, for not paying a better swimmer than themselves to rescue the baby. Essentially, you must concede the nanny state (no pun). 

Most people, including most libertarians, would help the drowning baby if they can. However, I would hope that most libertarians would avoid the vengeful rage that mobs tend to direct at innocent bystanders when things go awry.

Trevor Watkins 

[Garth Zietsman]

The debate was NOT about whether we should let the baby drown. The debate was about whether we should hold liable anyone (and everyone) in the vicinity of the drowning baby for not saving it. This is not a fine philosophical distinction - it is the fundamental point of the debate. I seem to remember the debate faded away when no one could offer a decent definition of how far out to sea the baby had to be before liability disappeared for the onlookers.

I think that was more your interest.  I was interested in the most extreme example of whether you were liable if you could have saved the drowning baby but didn't by merely reaching into a shallow pool with no threat to your life, almost no chance of getting wet and an insignificant cost to your time. 

 

 IF you concede that onlookers at an unfortunate event are liable through no fault or involvement of their own, then you must concede they are also liable for not training the baby's parents better, for not erecting fences near the water, for not teaching the baby to swim, for not paying a better swimmer than themselves to rescue the baby. Essentially, you must concede the nanny state (no pun). 

Personally I think the issue is always one of weighing the costs and benefits (not necessarily in utils) rather than some absolute rule that leads to absurdities in extreme examples. 

Most people, including most libertarians, would help the drowning baby if they can. However, I would hope that most libertarians would avoid the vengeful rage that mobs tend to direct at innocent bystanders when things go awry.

I hope so too. 

[Leon Louw (gmail)]

What did I write that's in conflict with what you write?

On 3 August 2013 16:48, Garth Zietsman <garth.z...@gmail.com> wrote:

You are wrong about that Leon.  There is a very large data base of people who identify as libertarians and they do score low relative to others on care, fairness, loyalty and sanctity.  There is no question about it. We may know a few exceptions but most people who identify as libertarian are as Frances said.  See here and click on "libertarian psychology" or just look for the libertarian studies.

On Sat, Aug 3, 2013 at 4:35 PM, Leon Louw (gmail) <leon...@gmail.com> wrote:

What Frances writes is nonsense.  There is nothing about Haidt's thesis that explains why so few people are libertarians.

Libertarians are typically for most of Haidt's values.  They are typically motivated if not obsessed more than others by:

1 (care)

2 (fairness)

3 (liberty)

4 (loyalty)

6 (sanctity) also applies to many.

Some are even for 5 (authority), though this is the only one that could be juxtaposed with liberty (depending on definition).

So few people are libertarians simply because they favour coercion as a means of promoting ends, whereas libertarians prefer co-operative means. 

[Leon Louw (gmail)]

I agree with Trevor.

Coercion also has a very specific meaning in law, developed and applied in thousands of contexts over thousands of years.

Libertarianism says "don't coerce" (ie consent).  

At that point the libertarian job is done; there is no need for libertarians to debate whether circumstance A or B entails coercion; that's what courts are for.

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[Leon Louw (gmail)]

I once saw a bumper sticker thus:  Vices are not Crimes.

The issue is what people should be forced to do, not what they should do according to codes of values.

Law, as opposed to ethics, is libertarian if it requires (explicit or implicit) consent for anything done to anyone (or their property).  Forcing someone to do something is not libertarian.

SA common law happens to be very libertarian.  It does not regard omission as cause, and therefore not saving the baby would not be a crime under SA law.  (There has been a recent shift towards imposing obligations so this may have changed.)

Duties of care are imposed only is special circumstances, such a parent-child relationships.

The case I recall from law school was that there is no duty to save a stranger from drowning, but there is a duty to save someone with whom you have a relationship of trust/care such as someone with you on a canoe trip down the Orange river.

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[Garth Zietsman]

What did I write that's in conflict with what you write?

This (below) is the exact opposite of what large representative samples of libertarians say about themselves in surveys - except the value 3 (liberty) of course..

[Leon Louw (gmail)]

Where do libertarians say they are against care, fairness, sanctity and loyalty?

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[Leon Louw (gmail)]

Please be specific and use accurate definitions.  I do not, for instance, want to be told that being for liberty is somehow not being fair, or that caring about liberty (the liberty of others) is somehow not being caring, or that being for liberty is somehow disloyal or anti-loyalty.

[Leon Louw (gmail)]

Darn, I should have added that I visited the website and see none of what you assert there.

It occurs to me that we will, as so often happens, talk past each other if we do not pin things down quickly, so let me explain my questions.

It does not mean I am less for fairness than you if I rank it lower than you on a list where I put liberty higher and you put it lower (which, as it happens, we would probably do in practice).  

I am only less for fairness if I give it an absolute score lower than you, if I give fairness 2 out of 10 as a value of mine and you give it 8 out of 10.  As it happens I suspect that I would give higher scores for both fairness and liberty than you.  

Such rankings are legitimate only if I can rank all values at, say, 10 out of 10, and if we both agree on what we mean by how we score. 

Are you saying that where libertarians can rank all at a full 10, they in fact rank some way down?

I also want to know something about actual behaviour.  As Sowell points out, opinion surveys can be misleading.  They notoriously indicate what people want others to think they think rather than whet they actually think.  Opinion surveys may therefore give better scores to people who are more dishonest and more concerned about third party impressions.  Democrats score higher than Republicans on such values as care in surveys Sowell cites, yet Republicans actually give more generously of their time and money than Democrats.

Are you saying libertarians actually do less for others than non-libertarians, and are more commonly disloyal, and that you have dependable sources to that effect?

[Garth Zietsman]

The Moral Foundations Scale is not one of those where you rank order values.  Each of the values has it's own scale. So yes if libertarians can give themselves a 10 they give themselves low marks relative to liberals or conservatives - except on liberty (and maybe fairness).  

Here you can see how over 2000 libertarians rated themselves on these absolute scales relative to liberals and conservatives (look at the second graph).  Remember these are there own opinions - not outsider opinions of libertarians.

Look up moralfoundations.org and you can do the test itself and see what the values refer to.

[Erik Peers]

I have no objection to coercion except that it is a big word that is not part of the South African vernacular. Violence or force are more easily understood, for instance forced removals of the people in District Six, as oposed to the coerced removals. Force goes with oppression better. Liberty is the solution to this.

I can just imagine two potential voters "Oh I say old chap, lovely weather we are having. Was your family ever cooerced by the government? Did they infringe on your liberties?" as opposed to "We were oppressed, the government forced us to move."

[Garth Zietsman]

On Sat, Aug 3, 2013 at 11:18 PM, albert nelmapius <sac...@earthlink.net> wrote:

Good I like those debating points but I want to start before that with
1. Wertfrei

I do not know this term.

 

2.Say's law

Say's law is built upon the assumption of some universal instant auction and falls apart the moment one introduces time.

 

3.Price inflation vs general inflation

I'm not sure what your distinction is here.  I know there are some - Austrians say - who define inflation as an increase in money supply - on it's own or relative to GDP - rather than a change in general price level.  The economics profession uses the term inflation to mean the latter so that's what I mean by it.  I would use the term money supply growth to refer to the former and say whether I mean M0, M1, .., M4.

I did not say that economists or mathematicians or teachers WERE value free,I was saying that the science of economics like the science of mathematics has to have value free laws that can be used by everybody, to distinguish it from opinion, which has to be substantiated first.

The theories are supposed to be value free but the point is that any economic (or scientific) theory usually more congenial to some political and social positions than others and hence will become politicized.  

All of us and not in the least Keynes have opinions. He was very anticapitalist, pro Marxist, pro fascist big believer in centrally planned economies.

No this is totally wrong.  See here for his take on Russia and Communism.  Elsewhere I saw his opinion of Marx's Das Kapital.  He thought it was a very poor effort.  He was also definitely not a fan of centrally controlled economies or anti free markets.  He thought his 'General Theory' was moderately conservative i.e. classical liberal, in implications, at least relative to anything socialist.  He was not pro fascism at all.  It is true the Nazi's used his theory - to great effect I might add - but he didn't like their philosophy.

 

That does not prove his theories were wrong. But it makes it likely that he could start off with arguments we can agree on and then morph into psuedo science. In my opinion he did, starting with claiming to refute Say's law.

In a nutshell I think Say's law says: people produce (like a pair of shoes) in order to buy something else (like pizza or a movie) so his production is the driving factor for "demand" in the economy.The more shoes he makes and the less you tax him, the more the economy is "stimulated" I accept that as a law like 2+2=4 It implies that there can be no such thing as significant hoarding, or oversupply or over demand or liquidity traps, or sticky wagesin  the long run (of course it can happen temporarily in pockets and sectors of the economy)

I think this is generally accepted for the long run.  Even Krugman accepts that.  The problem is that estimates of how far away the long term is comes up with very large numbers.  Also as Keynes said what good is economics if all it does is tell us the storm will end in 5-10 years or when we are all dead, if it can't help people weather the storm or help prevent storm damage?

 

If Keynes accepted that it would preclude him from being able to use his central planning ideas.

I don't really follow but as I just said he had good reasons for rejecting Say's law.

 

After that in my opinion, his formulas started having a built in value bias.
That is one reason Keynesians have such a fetish for GDP. It is a number that they can calculate and then plug into their little central planning computer as a constant to make calculations on how and how much to screw with the free market. The number can be manipulated in oh so many ways depending on what point you want to prove.

I believe GDP had it's origins with Fisher who noted how very unstable the economy was and argued that decent national stats would enable everyone (both private and government) to calibrate their activities to produce something more stable.  We libertarians like to use GDP too because it helps show that free markets makes everyone richer than controlled economies.

Another problem with GDP is that it is a snapshot of a particular moment in time. Yet they don't use it to do calculations on just that day, they use it to make  future predictions. Their model tends to calculate "consumption" as the measurement of the economy. Yes consumption is roughly equivalent to the economy on that day, but it is not a good predictor of whether the economy will  grow, like private profits reinvested in capital goods to make future production more efficient.

You are right.  GDP is flawed in many ways.  It leaves out not for pay production like housework, it counts dubious stuff like the cost of crime fighting, it doesn't account for the value of leasure, etc.  Changes in GDP are also very unstable.  I found that the correlations between the growth rates of countries between one year and the next are around 0.1.  One needs to look at growth over 20 years to get anything remotely reliable.

 

That formula for GDP you showed me was the formula for calculating the GDP in a MIXED economy, which has the fact that the government has to interfere, already assumed and built in to the formula.

I don't see how that follows.  Empirically we find that what we call economic freedom makes for faster GDP growth rates which would seem to argue against government interference even if government spending is part of the calculation.  BTW government consumption expenditure as a percentage of GDP does not correlate with overall GDP growth rates at all and I found in an analysis of 30 years data has a positive relationship with economic freedom i.e. more government spending seems to go with more economic freedom not less, most probably via the cost of rule of law.  There is something complex happening.  Anyway if you in fact have a mixed economy you should measure all of it.

 

So now they can say most of the factors are stuck  (because of animal spirits) except for government intervention.

I must have forgotten something.  I don't remember saying most of the factors are stuck.  Maybe you mean the bit about no one wanting to spend in demand driven recessions so while no one spends no one earns therefore government is the obvious entity to do some temporary extra spending.  

 

We agree that you can manipulate that GDP with an influx of stimulus and sure it will seem to improve consumption like their formula says.
But thet does not take the time factor of sustainabilty in account.
It is like throwing gas on the fire that now  burns out quicker.

I think a better analogy is that it is adding an appropriate amount of wood to a fire from which wood is being withheld.  If however the problem isn't that everyone is just holding onto money then your analogy applies.

 

For me what GDP is on a Wednesday or on a Friday is not that useful as opposed to how many new shoemakers were allowed to stimulate the economy by making money through production not by stealing from another taxpayer. Another missing calculation is dropping prices to clear the market. If a producer miscalculated and overproduced,and now is sitting on a surplus (and that includes a surplus of labor) It is a signal that the asking price is too   high. The asking price for the surplus in product or labor needs to drop to clear the market. Keynes calls that "idle resources" so he can call in his pals in government to save the unions from lower wages.

I don't know about that.  The need to lower prices need not result in a drop in people willing to spend and whatever happens prices will need to fall in real terms.  The whole sticky wages and prices thing is meant to play a role here.  I don't know if Austrians deny that wages are sticky or simply prefer long stretches of unemployment and reduced consumption as a solution - like Shumpeter.

 

As an exercise, play along with me.
Over the years a market for pink widgets at $100 each has gotten to stabilize at about 75 units sold per day..
What would happen if I used a helicopter or the fed or whatever to drop $10,000 per day into the laps of those buyers without simultaneosly increasing the production of pink widgets?
(hint it doesn't matter if youre a Keynesian or an Austrian)

Obviously enormous inflation will follow - probably over 133%.  However that is a normal economy and not a demand recession.  The market is $7500 per day so suppose instead that some scare e.g. maybe a rumour of a bank run or banks suddenly calling in debts on mass, makes a large number of people value holding onto cash much more so that only $50 per person is left for widgets.  Well now the market drops to $3750 per day i.e. half the widget market, meaning that half the widget makes get laid off and don't buy other stuff who then lay off their staff etc.  If the government did a helicopter drop of $3750 per day into their laps (not $10000) or buys half the widgets at market price then the economy hums on as before and no one gets laid off until people pay off their debts, the fear subsides or whatever and then the money drop stops and we are back to normal. 

[albert nelmapius]

Definitions:

1.       “Werfrei “is the German word for value free. You are already addressing that.

2.       Price inflation is rising prices in a sector or a product. It can be manipulated and is a normal part of the economy. Apple creates a frenzy and a pseudo shortage when they want to release a new I Phone. A war in the Middle East causes the price of oil to go up. Two things happen; people buy less oil as far as they can control it, (eventually the price of oil has to fall because of it) and because people have less money because they spent it on oil, they buy fewer other things and the prices in other sectors fall. There can be no “generalized inflation” because of normal market criteria.

General inflation means you wake up one day and the same unit of currency you had yesterday now buys less goods (whether it is a dollar or a Rand) It applies to all goods across the board. I was completely floored when I tried to tip somebody with 50c and buy a T shirt for R5 in South Africa few years ago. In my absence the going rate became about 1000% higher.

 It applies to everybody rich and poor, and it also applies if you take your Rand and try to spend it in another country. The value has been debased. This can only happen through the increase of the money supply and this can only happen with the help of government interference in the free markets

On Keynes:

“Where did Keynes stand on overt fascism? From the scattered information now available, it should come as no surprise that Keynes was an enthusiastic advocate of the “enterprising spirit” of Sir Oswald Mosley, the founder and leader of British fascism, in calling for a comprehensive “national economic plan” in late 1930. By 1933, Virginia Woolf was writing to a close friend that she feared Keynes was in the process of converting her to “a form of fascism” In the same year, in calling for national self-sufficiency through state control, Keynes opined that “Mussolini, perhaps, is acquiring wisdom teeth” (Keynes 1930b, 1933, p. 766; Johnson and Johnson 1978, p. 22; on the relationship between Keynes and Mosley, see Skidelsky 1975, pp. 241, 305–6; Mosley 1968, pp. 178, 207, 237–38, 253; Cross 1963, pp. 35–36).”

 

In the introduction to his book The General Theory for release in Nazi Germany, he wrote about: how useful his theory would be for “totalitarian states” paraphrased by me.

Source for above two items:  Keynes the man, by Murray Rothbard

 

Keynes was extremely pro free market early on in life and then flip flopped later. He was pro-communist in college but disavowed the Russian form of it after visiting Russia. But my argument does not depend on proving where Keynes got his motivation, only that we cannot take him or any other authority at their word.

No need for you to respond to this post because the only point I wanted to make is that at some stage a bias might have crept into his theories and you already concede that. I will talk about the specifics of that in the next post, so we can resume the debate after that.

[albert nelmapius]

OK this is where I pick up my debate.

 

You being a statistician and getting your education mainly from modern classical economists, I can understand (though not sympathize with) your need for statistical correlations and historical precedent. Hence the need for "aggregate" numbers and criteria like GDP that "summarizes" the whole economy in one formula.I don't mind historical references and statistics, but you heard about the statistician that proved the baby drowned in a lake that was on average two inches deep.

We see the economy as millions of little transactions going in millions of different directions every second. As long as there is no free money, the "mistakes" made by investors are small enough to correct without major repercussions. You cannot capture that Genie in an aggregate box- (Mises's calculation problem) Each person making his own decision based on knowledge he has at that second. He does not care or even know what egghead economists calculated most other people are doing. Just like he does not look up what the aggregate shoe size for the country is before buying a shoe.
And most of all you cannot "aggregate" the national mindset or psychology into one overbearing category and make predictions based on that.

 If increased government spending correlated with increased economic freedom (besides proving how inaccurate GDP is as a measurement of health in the economy) then the USSR and Cuba should have been the most economically free countries on earth.

It seems to me that you (and therefore I assume Keynes) have some obsession with speed of recovery. "We agree on the need for free markets to clear themselves except when..... it takes longer than we decree?".
(I am certain I read previous posts of yours where you debated against the evils of central planning)

Usually the argument goes that "something" spiritual causes people to fear and despair and stop consuming.And that the state should step in because nature will take too long to recover.

About those animal spirits of his.
You cannot just start telling the story in the middle where fear sets in. Why did it set in suddenly one beautiful Monday morning? Why have producers produced exactly the right amount of steel or bolts for hundreds of years and today they have a surplus laying idle?There usually is a very good, logical economic reason, not superstition.
Sure some people in the economy get scared by news and choose to withdraw from frivolous consumption.That is not a horrible thing, that is a survivor mechanism to increase survival. Because it lowers measurable "consumption" and therefore GDP, Keynesians believe that means the economy is worse off.( they preach the evils of hoarding and the paradox of thrift)

 Austrians believe that not spending, whether saving or hoarding, is very healthy for the future of the economy. It frees up money for investment and capital improvement.
Besides other entrepreneurs may have ways of profiting from downturns and make a killing. The aggregate number does not tell the whole story.

Now when Big Brother steps in to "speed up" this recovery, they obviously choose to stimulate that part which hurts most (the housing market in the USA) so things can supposedly get back to normal quicker. Only that PREVENTS the bad part of the economy to liquidate, forces a continuation of the mal-investment and PROLONGS recovery.

The story starts with a balanced economy. The politicians' and the Fed's helicopter chooses a sector that it wants to speed up, like housing, and drops money.
They pour down free money fast (last three or four American Presidents) or slow (Friedman liked 3% per year.)

Certain sectors boom. Like housing or dotcom or whatever. Even though the price of houses increases by 10% a MONTH, miraculously the state economists calculate that in "aggregate" there really isn't any measurable inflation- go figure.
Austrians say we have a bubble, run for cover. Mainstream economists say we have a "new prosperity"
Some time or other there is a contraction in money supply. The Ponzi scheme burns out and the helicopters stop raining money. Guess what that does to the aggregate psyche? There's your animal spirits. Every Tom Dick and Harry that mortgaged the family farm to speculate in rental housing now panics. The party is over. Less spending- recession.
The panic effect is a symptom not a cause.

Now in your pink widget analogy you want the state to start buying up these houses to stop the devaluation (read keep up the Ponzi scheme a little longer.) If the free money caused it to begin with, how would doing more help? And it doesn't really matter if you call it "demand" or "supply" or Roger Rabbit recession. It won't speed up the recovery. The money you rain on your "unemployed" or "idle resource" has to be stolen from you employed or active resource.

Only Big Brother did not save up any money during the boom either. So they either have to shake the tax tree a little harder (and worsen the depression) or borrow. Which is the same as going behind your back in secret and shaking the tax tree of your unborn children.

In the firewood analogy, the state does not have any firewood saved up. It can only take logs from the left side and redistribute it to the right side of the fire. If you want to put a time component in it, it can make a loan from future trees and put logs in the fire by stealing them from future fires 20 or 30 years in future How is that encouraging a quick recovery?? .... at the cost of a LOOOOONG future pain and some very cold winters for our future generations?

The time it takes the mal-investment to clear up depends on how big the mal-investment was.(and how little the state prevents clearing). It is what it is.
The people that were incorrectly employed in a fake bubble, need time to find employment in a sustainable industry not propped up by the state. You do not do them any favors by feeling sorry for them and propping up a redundant sector.

You say "the Fed saves the day and the money drop stops and we are back to normal." We are never back to normal because the debt is higher by trillions and I defy you to stop the money drop without bringing back animal spirits.

[Leon Louw (gmail)]

Having looked at your source and done a quick scan of the survey questions I'm not surprised to be left with many doubts and queries.  I don't have the time/inclination now to elaborate except to point out the most glaring flaw already mentioned, that Democrats give themselves higher caring scores than Republicans in conflict with actual conduct.  

Amongst other queries I intend addressing in a later email is that the survey does, as I expected, yield relative rather than absolute results (more precisely, results that rank relative values for given individuals rather than differences as between them). If you feel much more strongly about, say, religion than fairness, you give fairness a lower score because of how it compares with your higher values, not because of how it compares with higher values of others.  

Self-evaluation in surveys is notoriously at variance with conduct as market researchers know.  You don't find out what people buy by asking them, you look at what sells.  I am currently locking horns with government nicotine Nazis who say that the number of smokers has fallen substantially thanks to despotic laws.  They base their claim on surveys.  Guess what tobacco excise duties, smuggling data, tobacco company revenues, and tobacco production figures tell us, and guess why nico-Nazis waste money on surveys instead of using readily available and much more accurate data?

There's much more .... for later .....

On 3 August 2013 17:26, Garth Zietsman <garth.z...@gmail.com> wrote:

Hey I'm just reporting what a very large representative sample of libertarians say about themselves.  I don't think this value structure is necessary to be a libertarian nor is it inevitable.

I also don't believe those libertarians who argued against being responsible if they let a baby drown don't care or that they wouldn't actually save the baby.  It was more a case of biting the bullet of absurdity in order to preserve a principle. 

On Sat, Aug 3, 2013 at 5:01 PM, Erik Peers <erik...@gmail.com> wrote:

Leon, it is great that you have these values at your core. However not so for many Libertarians. Only recently there was an extensive debate on this very forum of whether we should let the baby in the swimmimg pool drown.

I'm with Garth on this one.

On 3 Aug 2013 16:48, "Garth Zietsman" <garth.z...@gmail.com> wrote:

You are wrong about that Leon.  There is a very large data base of people who identify as libertarians and they do score low relative to others on care, fairness, loyalty and sanctity.  There is no question about it. We may know a few exceptions but most people who identify as libertarian are as Frances said.  See here and click on "libertarian psychology" or just look for the libertarian studies.

On Sat, Aug 3, 2013 at 4:35 PM, Leon Louw (gmail) <leon...@gmail.com> wrote:

What Frances writes is nonsense.  There is nothing about Haidt's thesis that explains why so few people are libertarians.

Libertarians are typically for most of Haidt's values.  They are typically motivated if not obsessed more than others by:

1 (care)

2 (fairness)

3 (liberty)

4 (loyalty)

6 (sanctity) also applies to many.

Some are even for 5 (authority), though this is the only one that could be juxtaposed with liberty (depending on definition).

So few people are libertarians simply because thy favour coercion as a means of promoting ends, whereas libertarians prefer co-operative means. 

On 3 August 2013 12:59, Frances Kendall <fken...@mac.com> wrote:

Just finishing Haidt's new book on the evolution of morality - The Righteous Mind.  It is very enlightening and I strongly recommend it for those of you who are interested in the evolution debate.

It throws considerable light on why so few people are libertarians.

You might be interested in the website where he is doing research: http://www.moralfoundations.org

On 02 Aug 2013, at 3:30 PM, Trevor Watkins <bas...@gmail.com> wrote:

On 2 August 2013 08:20, Stephan Viljoen <njsvi...@gmail.com> wrote:

someone should make a nice infogram to show this...you know ons bloubulle can only understand pictures and soundbites...

Just read a Dennis the Menace comic. Have you ever noticed how happy the old neighbour is every time Dennis breaks his window?

Trevor Watkins -

[Leon Louw (gmail)]

I go along with Julian.  I have not read and probably will not read the article (unless enthusiasm for it raises my blood pressure sufficiently!).

It is quite conceivable -- well, almost conceivable -- that Krugman can write an article without an error.  He writes so much that it is statistically probable I suppose.  Rather like me passing varsity Latin; wrote the exam often enough to exhaust wrong answers.

In the days before I discovered the kinds of elementary economic insights Julian mentions, I read Marx, Keynes, Galbraith, Althusser etc extensively. All of them, especially Marx interestingly, have many error-free texts.  Marx, for instance, might have been the first to make the free lunch observation, which he did in his perspicacious analysis of education data (where he pointed out that there is no such thing as free education, and that private education in factories out-performed government schools). 

Krugman is an accomplished (albeit muddled) economist, so he is perfectly capable of getting all sorts of things right (albeit rarely).  Before I gave up on him, I was impressed by his analysis of Cold War economics -- his thesis being that the superiority of capitalism (albeit substantially diluted by Krugmanism) over communism was the decisive determinant of the west winning the Cold War.  His was even grudgingly complimentary about Reagan's role which he acknowledged but understated.  Oddly enough it was whichever book that was -- perhaps the one on Depression Economics -- that induced me to write Krugman off.  His dominant sin was, as usual, omission; in that case omission of core empirical data (identified by Friedman, Sowell, Rothbard inter alia), such as money supply manipulation, drought, and monumental New Deal failure (eg unemployment rising and growth stagnating under the ND).  The final straw for me was reading his newspaper columns which disrupted my digestive tract excessively.

As Julian says, the main issue with Krugman is his resolute omission of elementary economic insights.  I would add his mangling/omission of empirical data.  The basic economic insights Julian cites (and a few others) are the great contribution of economists to understanding human action and determinants of the course of events.  As an economist, Krugman must be aware of these insights, which makes the persistence with which he ignores them all the more reprehensible.

On 15 April 2013 16:07, Julian le Roux <leroux...@gmail.com> wrote:

This thread is a response to Garth's claim that he can't find the economic error in the following Krugman article:

http://www.nytimes.com/2012/09/14/opinion/krugman-the-iphone-stimulus.html

From my perspective, Economics has at least three foundational concepts:

1. Opportunity cost

2. Marginality

3. Incentives matter

The parable of the broken window is simply a demonstration of the concept of opportunity cost.

If someone willfully and repeatedly advances the broken window fallacy, so grave is the error that I will no longer accept them as a serious economist. It is akin to a physicist claiming that perpetual motion exists. They may be very smart and very articulate, produce(d) great ideas, have excellent economic modelling skills, have a vast knowledge of macroeconomics etc. But in my opinion, they should not be treated as serious economists, because their economic understanding has massive structural flaws (otherwise they are incredible liars and/or bullshitters)

Garth, before you respond, please read (and assimilate!) all the following material. Notice that the authors include Bryan Caplan, Russ Roberts, Don Boudreaux, Alex Tabarrok, Tyler Cowen, David Henderson.  Sure, I've also included two cultists at the end (Murphy and Block), but their arguments aren't based on Austrian economics, so you can assess the ideas without fear.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

http://econlog.econlib.org/archives/2012/08/bastiats_what_i.html
"But the central theme of the essay - opportunity cost - is hardly ideological."

http://cafehayek.com/2011/08/the-microeconomics-of-the-broken-window-fallacy.html

http://marginalrevolution.com/marginalrevolution/2011/09/the-breaking-windows-fallacy.html

http://marginalrevolution.com/marginalrevolution/2011/09/a-further-note-on-the-broken-windows-fallacy.html

http://econlog.econlib.org/archives/2011/11/the_modern_bast.html

(read the comments, which are instructive. IMO Karl Smith does not appear interested in the value of truth)

http://cafehayek.com/2012/10/disastrous-economics.html

http://cafehayek.com/2012/10/vulgar-keynesianism-at-full-gallop.html

http://blog.acton.org/archives/44928-hurricanes-lead-to-broken-windows-and-broken-window-fallacies.html

http://www.forbes.com/sites/timworstall/2012/10/29/frankenstorm-sandy-will-boost-the-us-economy/

http://lesswrong.com/lw/370/broken_window_fallacy_and_economic_illiteracy/

http://lewrockwell.com/block/block210.html

http://mises.org/daily/5593/The-BrokenWindow-Fallacy

http://consultingbyrpm.com/blog/2011/09/ozone-krugman-landsburg.html

http://consultingbyrpm.com/blog/2012/09/krugman-at-least-clarifies-his-position-on-the-broken-window.html

(The back and forth comments in this article highlight why Krugman is such a good bullshit artist.  He relies on implication and the ambiguity of language, so that if you try to call him out, he leaves enough space to wriggle through and claim that his accuser has unfairly misunderstood.  People like Leon and I pick this bullshitting up immediately (and it makes us ANGRY), while people like Garth, Daniel Kuehn & Karl Smith give Krugman the benefit of the doubt.  Screw that.  Krugman may not know what he is implying, how his audiences will interpret his words, but frankly I don't give a damn. He plays fast and loose with the truth.  Someone who respects and worships the truth would be at pains to make it crystal clear that he is NOT under any circumstances advancing the broken window fallacy.  Scant regard for the truth is what defines bullshit, and is why I absolutely loathe it. To see where I'm coming from, I encourage readers to pick up On Bullshit and On Truth by Frankfurt (thanks again Paul))

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