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Economic fallacy even a progressive can understand

Ockham

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The video and I are making different assumptions.

For example, in the baker scenerio, it is assumed that whatever the money the baker would have spent would have equal productivity in the economy as repairing the window.
I don't think it makes that assumption at all. No where does it specificy equal productivity nor insinuates it. It simply states --- fixing a window that's broken does not stimulate the economy of the village because of what is NOT seen... not because of equal productivity.

I think you're premise based on the assumption is a bad one... because it's based on an assumption.
 

tacomancer

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I don't think it makes that assumption at all. No where does it specificy equal productivity nor insinuates it. It simply states --- fixing a window that's broken does not stimulate the economy of the village because of what is NOT seen... not because of equal productivity.

I think you're premise based on the assumption is a bad one... because it's based on an assumption.

The assumption inherent in the video is that the value of spending that would have otherwise gone to the window is equal to the spending that would have been used to replace the window in terms of the velocity of money.

Also there is a difference between the loss of infrastructure (the broken window) and taxation that this video does not address. Breaking a window results in the loss of wealth due to the loss of functionality of the building, while straight taxation does not carry this penalty. Its apples and oranges.
 

justabubba

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You've effectively proved me wrong... the video wasn't simple enough apparently.

then i can look forward to your post showing us where this is actually applied public policy and not merely the rant of those without any rudimentary understanding of economics
 

tacomancer

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You've effectively proved me wrong... the video wasn't simple enough apparently.

It was so simple that it left out crucial details.
 

Ockham

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The assumption inherent in the video is that the value of spending that would have otherwise gone to the window is equal to the spending that would have been used to replace the window in terms of the velocity of money.
Partially true but the part you're leaving out is the part where that money used to fix the window would have been spent on a new suit --- which is not necessarily equal in cost. The velocity of cost isn't implied either - and focusing simply on the video - it's simpler than that.

Also there is a difference between the loss of infrastructure (the broken window) and taxation that this video does not address. Breaking a window results in the loss of wealth due to the loss of functionality of the building, while straight taxation does not carry this penalty. Its apples and oranges.
Taxation for stimuls spending was what it compared ... creating jobs at the cost of tax money to stimulate the economy was what it pointed out.
 

Aunt Spiker

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I'm going to focus on something in particular:

I'm thoroughly sick of people believing that "war can recover a country"
If war could recover a country - then why'd *our* economy go down the crapper *while* we were at war?

What looked like recovery during WWII were these things:
A depletion of *employed* people - they were shipped overseas to fight. . .(they were re-employed elsewhere). . . many never came home. . . and often going away meant *going away for years*
While these people were gone many people were merely put into their places.
We also *produced* much of our munitions, supplies and equipment.

These 5 key things (and a few others) are *missing* from our current war-situation. . . .leading our war to be *bad* for our economy.

We are not producing munitions, supplies and equipment in mass loads - and when we do - it's usually outsourced: large companies *net from a world-wide labor pool* to produce these goods = money going *from* our economy into another country's economy.

*Mass-production - more and more of these goods are machined - requiring less people to produce an equal number of items.
*Deployments are shorter - 6 months, 1 year, 18 months . . . rather than 2, 3, 4 years at a stint.
*There is no draft - if you are *in* the military then you *might* deploy.
*Our death and casualty counts are lower - there isn't a massive hole in the labor-pool of abled bodied men.
*You are guaranteed to be able to keep your job when you come back home - up to one year post deployment orders.
*There are more non-mortal casualties returning, as well - which leaves them military-less as a career and puts them in the 'regular job pool'

Things have changed - a lot - and war isn't always beneficial to a country's economy and will become less so as emergency healthcare improves, non-mortal casualties increase and there are further efforts to limit the negative effect of soldier-deployments on the economy/small businesses/etc.
 
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tacomancer

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Partially true but the part you're leaving out is the part where that money used to fix the window would have been spent on a new suit --- which is not necessarily equal in cost. The velocity of cost isn't implied either - and focusing simply on the video - it's simpler than that.

Taxation for stimuls spending was what it compared ... creating jobs at the cost of tax money to stimulate the economy was what it pointed out.

I didn't leave the first part out, I pointed out that it was possibly an inadequate comparison because it does not take everything into account.

The chart I posted already addresses the second point.
 

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FDR and the Great Depression should have taught America that Gov't spending does not save the economy, sadly our education system has so devolved people believe FDR got us out of the GD... sad really.

You are correct, FDR and the Great Depression PROVED that it takes an huge amount of government spending to end a depression. This was proven when the "New Deal" policies didn't work out so well, but the huge increase in gov spending due to WW
2 did pull us out of the great depression. It doesnt matter that the WW2 spending was to fight a war and never intended as economic stimulous, what matters is the fact that WW2 spending proved that huge government spending can end bad economic times.

So now, lets review. Why did the spendulous program not work? Because it was not directed at creating jobs and because it was WAY TO SMALL.
 

Ockham

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I didn't leave the first part out, I pointed out that it was possibly an inadequate comparison because it does not take everything into account.

The chart I posted already addresses the second point.
The chart addresses it but does not refute the fallacy of it.
 

imagep

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I'm going to focus on something in particular:

I'm thoroughly sick of people believing that "war can recover a country"
If war could recover a country - then why'd *our* economy go down the crapper *while* we were at war?

What looked like recovery during WWII were these things:
A depletion of *employed* people - they were shipped overseas to fight. . .(they were re-employed elsewhere). . . many never came home. . . and often going away meant *going away for years*
While these people were gone many people were merely put into their places.
We also *produced* much of our munitions, supplies and equipment.

These 5 key things (and a few others) are *missing* from our current war-situation. . . .leading our war to be *bad* for our economy.

We are not producing munitions, supplies and equipment in mass loads - and when we do - it's usually outsourced: large companies *net from a world-wide labor pool* to produce these goods = money going *from* our economy into another country's economy.

*Mass-production - more and more of these goods are machined - requiring less people to produce an equal number of items.
*Deployments are shorter - 6 months, 1 year, 18 months . . . rather than 2, 3, 4 years at a stint.
*There is no draft - if you are *in* the military then you *might* deploy.
*Our death and casualty counts are lower - there isn't a massive hole in the labor-pool of abled bodied men.
*You are guaranteed to be able to keep your job when you come back home - up to one year post deployment orders.
*There are more non-mortal casualties returning, as well - which leaves them military-less as a career and puts them in the 'regular job pool'

Things have changed - a lot - and war isn't always beneficial to a country's economy and will become less so as emergency healthcare improves, non-mortal casualties increase and there are further efforts to limit the negative effect of soldier-deployments on the economy/small businesses/etc.

You are correct. Wars do not improve economies, but huge government spending can help when the private sector is not doing well. Your post was perfectly accurate.
 

Aunt Spiker

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You are correct. Wars do not improve economies, but huge government spending can help when the private sector is not doing well. Your post was perfectly accurate.

It depends, though, on *what* the government puts it's money to.

Bailing out failing corporations who pet billions in profit every year does *not* do it.

On a different note - this very discussion was held in the move 'The Fifth Element' where Zorg was explaining to Cornelius that *he, too, was in the business of propagating life* and goes on to explain how a broken glass can stimulate the need for inventions (which busy about to clean it up) and thus employ hundreds to create this little machines and thus provides for their families and their children's children. . .
 
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Renae

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It depends, though, on *what* the government puts it's money to.

Bailing out failing corporations who pet billions in profit every year does *not* do it.

On a different note - this very discussion was held in the move 'The Fifth Element' where Zorg was explaining to Cornelius that *he, too, was in the business of propagating life* and goes on to explain how a broken glass can stimulate the need for inventions (which busy about to clean it up) and thus employ hundreds to create this little machines and thus provides for their families and their children's children. . .

When Zorg is your example, you have problems...
 

Aunt Spiker

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When Zorg is your example, you have problems...

:rofl

I was trying to think of a more mature situation - like Machiavelli or a philosopher - but my mind drew a blank. I just watched the movie today so it was quite fresh in my head :)
 

cpwill

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If, by means of a stimulus, you can put people to work earning money (and paying taxes), not only will you have people working, but they'll have money to spend. More people will have spending money even though the individual may have a little less. This increase in spending (and there is a guaranteed increase, those without money spend almost nothing and if they get money, they'll spend it) goes back into the economy and gives you your recovery.

So simple even Conservatives can understand :)

yes! and all the money that you use for the stimulus comes from the Magic Money Tree, correct? :)
 

Renae

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:rofl

I was trying to think of a more mature situation - like Machiavelli or a philosopher - but my mind drew a blank. I just watched the movie today so it was quite fresh in my head :)
You got me to giggle, so all is well :)
 

cpwill

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You are correct, FDR and the Great Depression PROVED that it takes an huge amount of government spending to end a depression. This was proven when the "New Deal" policies didn't work out so well, but the huge increase in gov spending due to WW 2 did pull us out of the great depression. It doesnt matter that the WW2 spending was to fight a war and never intended as economic stimulous, what matters is the fact that WW2 spending proved that huge government spending can end bad economic times.

:lol:

During WWII, the New Deal (as much as the New Deal can be considered a hollistic program as opposed to a grab-bag of hairbrained schemes) generally went away. businesses had regulation lifted, and instead of being hunted, were guaranteed profits. furthermore, the notion that we recovered during WWII is ludicrous; the entire populace was under severe rationing. about the only measure by which we 'recovered' is that the exceedingly high unemployment rate (which was a result of the New Deal, and it's predecessor programs) waned as huge numbers of men were drafted into the military.

So now, lets review. Why did the spendulous program not work? Because it was not directed at creating jobs and because it was WAY TO SMALL.

:D well hells' bells, if all we have to do to get rich is spend money, heck yeah! let's make the next stimulus 100 Trillion Dollars! let's just print off a million bucks and give it to every man woman and child in America! woooh! we can all be rich as kings!!! :lol:
 

Hoplite

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Something else the OP's video sort of skips over is at the end. The baker says the community is out a window and a new suit because the money he spent to repair the window would have been spent on a new suit.

Except, the window repair man will spend the money he receives from the baker.

The money still goes into the economy, just via a different route.
 

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I'm going to validate and refute Keynes at the same.

First the broken window fallacy is true in our modern society.
The reason being is that our application of Keynesian economics is broken and misguided.

Quantitative easing can work, it can stimulate an economy but it won't work long term as long as our government continues to stimulate the economy during the boom.

It creates a larger bust, requiring an ever larger stimulus to create another boom, which again we'll be inflating because of continued stimulus.

In order for Keynesian economics to work, you have to have politicians that act like angels.
Keynesianism is a defunct economic system in application.
 

pbrauer

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Something else the OP's video sort of skips over is at the end. The baker says the community is out a window and a new suit because the money he spent to repair the window would have been spent on a new suit.

Except, the window repair man will spend the money he receives from the baker.

The money still goes into the economy, just via a different route.
The video makes a bogus assumption, that the stimulus would be used to repair the bakers window. Stimulus funds should be used to invest in our country, such a bridges and highways. This is what happened during the Eisenhower administration in the '50s.
The Dwight D. Eisenhower National System of Interstate and Defense Highways, commonly called the Interstate Highway System (or simply the Interstate), is a network of limited-access highways (also called freeways or expressways) in the United States. It is named for President Dwight D. Eisenhower, who championed its formation. As of 2006[update], the system has a total length of 46,876 miles (75,440 km),[1] making it both the largest highway system in the world and the largest public works project in history.[2] The Interstate Highway System is a subsystem of the National Highway System.

While Interstate Highways usually receive substantial federal funding (90% federal and 10% state) and comply with federal standards, they are owned, built, and operated by the states or toll authorities. For example, the original Woodrow Wilson Bridge (part of Interstate 95/495), was maintained by the federal government; its new span is now jointly owned and maintained by the states of Maryland and Virginia.[3] There are also other Interstate Highways within the District of Columbia, which is federal territory.[4]
Interstate Highway System - Wikipedia, the free encyclopedia
 
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You can tell the partisan hackery from the first 10 seconds where it demonizes Paul Krugman for doing his job.

This video is supremely idiotic. Basically, what they're arguing is that when the window is broken wealth is lost because the window has to be repaired. Okay, so I don't know anyone that would disagree with the fact that when a product worth something is destroyed that value is lost. This has to be the dumbest proclamation of a "fallacy" that I've ever heard. "If you break something its value is lost." No **** moron!

It then goes on to attempt to compare the broken window with the funding of public works programs. Except the two aren't related at all. There is no "value lost" in funding public works programs. Nothing is destroyed. The two are in absolutely no way, shape or form comparable. One is actual wealth destroyed while the other is opportunity cost. One presumes a change in the overall level of wealth while the other is regarding the allocation of that wealth with no changes in its overall level.

A more comparable situation would be if the window wasn't broken and the baker decided to buy a suit instead of buying some more flour. Comparing value lost and opportunity cost is unbelievably stupid. The "private sector jobs" would be the opportunity cost of the public funding example, whereas in my example the opportunity cost would be the flour. In the broken window example, the opportunity cost would be the suit and the breaking of the window would be completely unrelated to it.

Finally, it goes on to state the very tired assertion that government spending crowds out private investment, which is not always the case.

This is among the most simplistic, childish and utterly stupid attempt to assert partisan trash as "truth" that I've ever heard. Unfortunately this kind of crap permeates economics programs in schools all across the country, and I'm all too familiar with both the idiotic arguments as well as their fallacies. I'm pretty ashamed to call myself an econ major when crap like this is considered college level material.
 
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prrriiide

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Get Gov't out of the way

You mean like the GOP blocking the small-business loan guarantee program?

repeal Obamacare

No argument there. Calling that bill "reforn" is like calling a pedophile an upstanding citizen.

repeal the FinReg monstrosity

So you believe (in the face of all contrary evidence) that REGULATION is to blame for what happened to the economy? You don't think that completely dismantling the safeguards (via Gramm-Leach-Bliley) that kept this sort of thing from happening for 80 years (since the GD and Glass-Steagall) MIGHT have had just a wee bit to do with it? The FIRE sector has proved time and again that when the vast sums of money involved are in play, that regulation is an absolute necessity. Your eutopian capitalist model relies on people being completely honest and rational, and markets being completely rational. Neither are either. You don't expect a fire in your house, but you still change the battery in the smoke detector every 6 months. You don't expect your kid to smoke pot and be an idiot, but it still matters that you spell out that it's against the rules of the house.

pull "cap and trade" from even being considered, tell the EPA to take the CO2 regulations and burn them,

Yes. Because the latest studies (the ones done AFTER climate-gate) are obviously biased too. :roll:

cut Gov't spending by 30%

HAS to be done

and taxes across the board

So we can go further into debt? Uh-uh. Let the Bush tax cuts expire, then re-visit them AFTER we stop digging a financial hole and quit selling our legacy to China. And before you waste your time typing the typical "tax-cut = more-revenue" saw, I have already shown in this post that it is a fallacy, using OMB's numbers. Revenues DID decline after the Bush tax cuts, and deficits ballooned. In fact, 2003 saw the lowest level of tax collections as a % of GDP since 1942.

(or better move to the fairtax national sales tax)

THAT is an absolute laugher! In the face of this economic downturn, you can throw out a punchline like that! You live in Texas, which has no income tax (just as my state of Tennessee). Texas' revenue stream is based heavily on property taxes, which aren't going to go down no matter how much value your home loses. Sure, there's some sales taxes, but the lion's share comes from property taxes. As of January 9th, Texas was already down $1 BILLION dollars in sales tax revenue from 2009. Tennessee is primarily reliant on sales tax revenue for state funding. This economic downturn has decimated state and municipal coffers, and it's getting worse. Do you REALLY want to tie the ability to provide for the common defense and do all of the things that the government is going to be expected to do (close the Mexican border, keep roads in passable condition, continue 2 wars, expand anti-terrorist programs, etc.) to a tax that is entirely at the mercy of economic whims? When people don't have a job, or are worried that they might lose the one they have, they don't spend money. When they don't spend money the government doesn't collect sales tax. The equation really is that simple.

And within 18 months you'll see the economy explode to life.

Not until the housing problem gets sorted out. That's the 800-pound gorilla in the room.


OR you can keep dreaming this fallacious fantasy that Business can thrive under heavy regulation, taxation and Gov't demands and future uncertainty in just how much meddling the Gov't will do in the day-to-day operation of business.

I never said business can thrive under those conditions. But apparently common-sense regulations put in place to keep unscrupulous financiers from driving the economy over a cliff are "heavy regulation and demands" in your lexicon, and holding business accountable for their actions is inappropriate meddling.

And taxes? They're going to go up. It doesn't matter who is running things. The tax-cut boat has long-since set sail on a sea of deficits and borrow-and-spend philosophies of the current and immediate past administrations. I'm not real happy about it, but I'm also enough of a realist to know that, tea-party propaganda aside, the government has to increase revenue and slash expenses.
 
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