Broken Window Fallacy Fallacy
So lately I’ve been hearing Bastiat’s broken window fallacy repeated in order to retort some liberals’ thoughts that the Japanese crisis may help the economy. It was also a common argument – for some reason – against the stimulus.
In the Daily Caller, Ryan Young explains why [the Keynesian argument] makes no sense. Sure, Japanese workers will have no choice but to rebuild, and people will have to spend their savings to rebuild their houses or replace possessions destroyed in the quake. That spending will be captured in GDP measurements and it will look like Japan’s economy is boosted. However, Ryan notes:
. . . if the tsunami had never happened, people would still have all the buildings and cars that they had in the first place. They would be able to spend their money on other, additional goods that they want.
And those new construction jobs the tsunami will create? Every last one of those workers could be making something else instead. They could be producing computers, televisions, almost anything.
As not to let the great Bastiat be used so crassly, allow me to point out that, yes, fixing a broken window or a destroyed city won’t make more wealth than we originally started with. It will only get us back to where we previously were. Now let me just clear this up to the anti-stimulus crowd: Bastiat wasn’t arguing to stop fixing broken windows. We had a recession – the economy shrunk. Japan is going through a catastrophic disaster. It helps the economy to fix things.
So when de Rugy says the GDP measurements make it “look like” a boosted economy, what she fails to notice is that it looks like GDP is growing because it is growing. Ryan Young stumbles on the whole reason why we need stimulus when he writes, “those workers could be making something else.” The problem during a recession and our currently weak economy is precisely that lots of idle workers are not making anything. De Rugy smugly wonders why stimulus advocates don’t “recommend that we send our military to destroy New York, and some bridges and roads along the way” in order to improve the economy. Well, Veronique, doing that would commit the broken window fallacy. Thinking that we shouldn’t pay jobless construction workers to fix our naturally crumbling infrastructure is the broken window fallacy fallacy.