The broken window fallacy rears its ugly head again!

No doubt. Keynesian economists are complete ignoramuses. Whenever there has been a natural disaster, these economists steeped in Keynesianism continue to perpetuate the myth of economic growth during the reconstruction phase. Obviously I am referring to the devastation that has struck Japan. Take for example this report from abc (US) news, and I quote –

And in the long run, the disaster could help the Japanese economy as reconstruction projects put people back to work.

Natural disasters “do eventually boost output,” said David Hensley, an economist at JPMorgan Chase. The 1989 San Francisco earthquake and the 1994 Northridge quake outside Los Angeles, for example, ultimately helped the local California economies, he said.

Get that. Disasters in the long run ultimately help the economies. What an ignoramus. If you have ever read such a statement and felt it just didn’t read right that’s because it doesn’t. You can safely believe your gut instincts on this one.

Do they not factor in the capital destruction? Where is that accounted for in the GDP? If you took that logic to its extreme 9/11, the boxing day tsunami, the Haiti earthquake, and even war is ultimately good for the economy. I trust that you dear reader are not that dumb.

These Keynesian economist should read Bastiat again –

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation–“It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade–that it encourages that trade to the amount of six francs–I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen.

If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.

Whence we arrive at this unexpected conclusion: “Society loses the value of things which are uselessly destroyed;” and we must assent to a maxim which will make the hair of protectionists stand on end–To break, to spoil, to waste, is not to encourage national labour; or, more briefly, “destruction is not profit.”

What you have just read is the famous Broken Window Fallacy, made famous again by Henry Hazlitt in his book, “Economics in One Lesson”.

Read it, it will save you a lot of time and confusion when you listen to the MSM trying to pull the wool over your eyes.

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About 1D

I've been fermenting in Canberra OZ for awhile now... Like all public servants I'm battling the cubicle nation... This blog will share my personal journey in which I am preparing to get out of cubicle jail... Time to be your own architect...
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