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AlbertJayNock

Keynesianism and the broken window fallacy

I came across this interesting passage in Brian Doherty's  Radicals For Capitalism, a history of libertarianism I have been reading. It's about Henry Hazlitt and his treatment of what economists call "the broken window fallacy":

"After reading [Hazlitt's Economics in One Lesson] you  will understand why it is not a good thing that some hoodlum breaks a window. Of course it  isn't. But some smarty-pants Keynesian might come along and convince you you're a sucker, because while you see only a broken window, he sees all the work created and money changing hands as the shop owner has to hire a glazier, pays his workers, who use that money at their corner store, and so on."

And this is fallacious. As Hazlitt points out, you don't see what the shopkeeper would have done with the money he spent to have his window replaced. He could have bought himself a new suit, which would help the local tailor, or put it back into his business. It would have been spent on real wealth creation, instead of replacing destroyed wealth.

The broken window fallacy is fairly consistent with Keynesianism.  It's a bit of a simplification, but Keynes believed that anything that created work, regardless of destructive side effects, is beneficial. And it's not that much of a simplification. Keynes is on record as saying "Pyramid building, earthquakes, even wars may serve to increase wealth". He also once suggested that burying bottles filled with money and letting people dig them up again would provide economic stimulus.

Perhaps the worst thing about Keynesianism is that he makes it necessary to explain why a broken-window is a bad thing (there's that make-work again.)

Damn smarty-pants Keynesians.

Comments

Truth be told, I had to practically twist my brain, at the age of 18 (the time when I started really reading free-market stuff), to figure out why the broken window fallacy is a fallacy. Also why free trade benefits both parties.

But before that time, I knew that industrialization and building houses were bad for the environment, and greedy bossed exploited their workers.

That's why I, usually a person who hates any kind of force whatsoever (and even persuasion some of the time), actually sometimes think that economics education in public schools should be mandatory.

Edited at 2009-05-08 11:38 pm (UTC)
I'll admit that some free market principles are counter-intuitive.

Although I think even though it can be hard to understand why the broken window fallacy is a fallacy,
it's not so hard to believe that it is indeed a fallacy.
Right...otherwise, you'd see people getting paid to throw rocks at windows and crash cars for no reason.

Wait, that sounds like some government make-work programs. :D