What's the difference if gov't gets the ball rolling, or private enterprise?

[Iamme]

I have heard if gov't initiates it, that the gov't has to print up phoney-baloney money in order to do it.

So? Why is that so bad? Who cares who pushes the ball if then it causes contracts to be let to private businesses who then create a huge chain down effect from things that then become needed.

Suppose the gov't thinks one of the best ways is to build up our infrastructure. Suppose they want to do it to the tune of trillions of dollars. What is so bad say if the gov't puts contractors to work, and pays the contractor, but then the money from there flows freely(no more gov't fianncial involvement)through the private sector, from that initial general contractor paying off subcontractors that include all the trades involved, suppliers, miners. manufacturers, truckers, clothiers, etc., etc.

Why can't we do that if say we do not have to use our unbacked phoney money to pay a foreign country for materials in order to pull this off? If we have all the materials to make steel, concrete, glass, plastics, etc., etc., why can't we simply do make-work projects that gets the entire country going?

Why not carry it even a step farther and demolish existing houses and cars and put people back to work making new ones. Why wouldn't this work?

Maybe this is how the pyramids were built. Maybe the gov't employed all the workers and look what they created? Look what all of mankind, even millenia later, get to see - something of lasting substance. Who cares that say private investors did not put up the capital needed to fund the pyramids. So it was done by the gov't.? So what?

In our case, if this caused us to get oil wells up and pumping HERE (not abroad), and OUR steel mills to produce more, etc., etc., how could not this make for vibrant economy? And like I said, so it "cost" the gov't trillions? Just print up the money.

But, but, but - "It wouldn't be backed", you say? So? Why does it have to be backed? What good does gold do anyone, anyway? You sit there at your kitchen table ,with gold on the table, going, "Ooooohhh, look what I have!" ? Ya. What does that get you? That's just a racket industry anyway, isn't it? It isn't like gold is valuable because it is finite, and who holds the most holds the most wealth. Heck, they keep mining more of it! So then why is it so valuable? The value should come down when they keep finding more of it, you'd think. I think it is all rigged, like diamonds.

Wouldn't you rather see everyone working, building great things, having something to show for it? Wouldn't that create GDP? And then more tax revenues would follow?

Sounds too easy. What's wrong with such a plan?

[A Christian Sceptic]

Not sure how serious this post is but what the heck ...

I have heard if gov't initiates it, that the gov't has to print up phoney-baloney money in order to do it.

So? Why is that so bad? Who cares who pushes the ball if then it causes contracts to be let to private businesses who then create a huge chain down effect from things that then become needed.


In addition to printing they could just take. They can also just borrow and default. My guess - at some point it will be all the above.

Curious - Why do you think counterfeiting currency is illegal? Or should it be made legal? Why or why not?


Why not carry it even a step farther and demolish existing houses and cars and put people back to work making new ones. Why wouldn't this work?


I'm totally not clear what your proposing here? You want the government to dystroy the house you live in the rebuild it? And just have the government pay to rebuild it?


But, but, but - "It wouldn't be backed", you say? So? Why does it have to be backed? What good does gold do anyone, anyway? You sit there at your kitchen table ,with gold on the table, going, "Ooooohhh, look what I have!" ? Ya. What does that get you?


when in the history of currencies has gold been worth zero? When in the history of currencies have currencies been worth zero?

[Puppycow]

Iamme actually has a good point.

Up to a certain point, and under certain circumstances, which I will explain, it can be helpful for the government to do exactly that: print up new money out of thin air and order it to be spent in certain ways to get people employed productively in a way that benefits society.

The circumstances are that certain prerequisites be true:

1) The government in question is actually a government for the people and not a government for the government or for a small clique of elites.
2) The government knows how spend the money in a productive way.
3) The government utilizes only idle productive capacity or productive capacity that underemployed or misallocated. If it takes productive resources away from more productive activities, it is bad.
4) The government doesn't create too much money because that would cause hyperinflation, which is bad.

So, I agree with Iamme, but only up to a certain point. There really do have to be limits on this or you will destroy the private sector, which is bad. If government offers better salaries than the private sector can afford to offer, those people better be more productively employed than they would be in the private sector.

There is a problem in poor countries when the UN comes in for example. They offer more money for drivers than doctors or lawyers make. So doctors and lawyers quit their jobs to work as drivers. That is counterproductive. This is what the government must avoid.

[Wolfman]

While gov't can certainly help inspire or support growth and change, I think that it is generally very poor at actually leading or guiding change.

A simple example that I like to use from my experience in China. When I was living in Shanghai, the taxis there generally had a very poor reputation...dirty taxis, drivers who treated passengers badly, and who didn't now even major locations in the city, much less smaller streets. Service was terrible, training almost non-existent.

The Shanghai gov't did many things to try to change this. They passed regulations proscribing minimum standards and imposing fines for certain behaviors. They offered economic incentives for companies that met certain standards. They did public awareness and education programs.

And yet the change was almost non-existent.

Then a Singaporean company started a new taxi company in Shanghai, "Da Zhong". They brought in all the high standards they used in Shanghai. All their drivers had to go through an intensive training and qualification program. They had to learn all the streets and locations. They were given strict training about conduct and service standards. Drivers were regularly checked by anonymous 'passengers' (who actually worked for the company), and if the taxi was found to be dirty, or the driver did anything that didn't meet company standards, he'd get a warning (first time) and then be fired (second time).

Within a few months, everybody in Shanghai knew about Da Zhong, and how superior they were to other taxi companies. Many of my friends there would intentionally ignore or send away taxis that didn't belong to Da Zhong, even if it meant waiting longer to find a taxi. The other companies faced a sudden, significant loss in business.

So...they changed, too. They copied the practices of Da Zhong, and two years later, most of them had similar standards and practices.

No matter what the gov't does, so long as the companies in a particular industry have similar perspectives (don't want to change, can't see other alternatives, etc.), it isn't gonna' change much. But if one company makes changes that significantly affect others...those others are gonna' have to change, also, or else they'll find themselves out of business.

Now, part of the reason for Da Zhong opening in Shanghai was the financial incentives the gov't offered for a 'good' taxi company. It made it more attractive to them. So the gov't actions did have some impact, in terms of encouraging and supporting a new company that otherwise might not have gone to Shanghai. But the actual, real change came about as a result of decisions and actions at the private level, not because of the gov't.

[Puppycow]

They passed regulations proscribing minimum standards

I think I see where they went wrong. ;)

[theprestige]

Well, the government has the option of compelling payment, even if nothing of value is being created: They can either run a deficit in the hopes that some future generation will be wealthy enough to pay it off, or they can force the present generation to pay more than they would otherwise pay (which is taxation), or they can do both.

Private enterprise, on the other hand, must rely entirely on the principle of offering people what they want, at a price they can afford. When they succeed, wealth is created and the economy thrives. When they fail, they are replaced by others willing to attempt the same.

When has the government ever admitted failure, and withdrawn its offering from the market?

[Cavemonster]

The Shanghai gov't did many things to try to change this. They passed regulations proscribing minimum standards and imposing fines for certain behaviors. They offered economic incentives for companies that met certain standards. They did public awareness and education programs.


Correct me if I'm wrong, I haven't lived in China, so your expertise far outweighs mine, but they have a pretty poor reputation wrt effectively enforcing health, quality and safety standards. I wouldn't use their efforts at quality control as an examples of the limitations of government.

[Wolfman]

Correct me if I'm wrong, I haven't lived in China, so your expertise far outweighs mine, but they have a pretty poor reputation wrt effectively enforcing health, quality and safety standards. I wouldn't use their efforts at quality control as an examples of the limitations of government.
Even with that being said...the motivations are entirely different. If its done by the gov't monitoring them, then they will do the absolute minimum to meet gov't standards, and nothing more. And will always be looking for shortcuts and loopholes. Whereas if it is competition, like that with Da Zhong, they now have a motivation to excel, as opposed to meet minimum standards.

[Cavemonster]

Even with that being said...the motivations are entirely different. If its done by the gov't monitoring them, then they will do the absolute minimum to meet gov't standards, and nothing more. And will always be looking for shortcuts and loopholes. Whereas if it is competition, like that with Da Zhong, they now have a motivation to excel, as opposed to meet minimum standards.

Not entirely, they're just motivated to be enough better than the competition to be discernable by the customer base and nothing more. Excellence greater than that is highly inefficient and discouraged within capitalism. Chinese products are a great example of this. They compete brutally on price and try to get away with what they can in quality. That's market forces driving quality and safety downward.

And to clarify even more, they're just motivated to seem more excellent to their customers, and only in those facets that are noticable around the direct customer interaction.

If they were burning orphans in the engines to get good gas milage, capitalism makes it profitable to install soundproofing so customers won't hear the orphans screaming.

Customers are often not equipped or motivated to look past appearances and immediate benefits. I'll totally agree with you that for some things the profit motive is the best way to better results in goods and services, and there are inherent limitations in how governments can directly affect markets (although most 1st world governments do a better job than China in those areas I discussed before). But there are also limitations inherent in the market improving things.

Take your cab example again, what if those foreign cabs hadn't arrived? Often times even when market forces might conceivably lead to improvement, the market does not naturally cough up those conditions, it's a bit of a crap shoot. Why wasn't it a race to the top before the foreign cabs arrived? Market forces enthusiasts like to speculate that there is always pressure and reward for better quality within a market, why didn't he market generate that competition from within for all that time? Markets don't always compete in that ideal way.

[Iamme]

Not sure how serious this post is but what the heck ...



I was expecting such a response. Well, I'm going to sit here and enjoy and read the answers for a while.

[Iamme]

Iamme actually has a good point.

Up to a certain point, .........So, I agree with Iamme, but only up to a certain point. There really do have to be limits on this or you will destroy the private sector, which is bad. If government offers better salaries than the private sector can afford to offer, those people better be more productively employed than they would be in the private sector.



The gov't would not offer better salaries, with what I had in mind. No gov't employees in this, other than overseers at best. They'd simply be the supplier of the money to general contractors. Once in the hands of the GC, the GC takes it from there and pays all the workers and suppliers. It would all be run like the free market, except the gov't would pay for it, without the taxpayer even paying it back(except in tax revenues that could grow because of this) because the gov't simply printed up enough money to pay for it.

Or is this some pie-in-the-sky plan?, ranking up there with perpetual motion machines? Am I forgetting some overlooked basic fact of economics. And if I am overlooking this, did Presidents F.D.Roosevelt and Obama overlook this too?

If we paid people to just dig holes and fil them up again, I can see hyper-inflation in that. But if we made tangible goods with the gov't fronted money, that would lead to more steel being made, more concrete being made, more light fixtures, wiring, workclothes, tires, vehicles, sheetrock...etc., etc.,etc.,all made inthe USA as much as possible ...WOULD this really lead to a super-inflation state? Or would the benfit of this outweigh the risk? Maybe we could fix the economy by next weekend! (Not quite, but you know what I mean)

[Tippit]

I have heard if gov't initiates it, that the gov't has to print up phoney-baloney money in order to do it.



The "ball" is already rolling. The government has to slow the ball down for some before it speeds it up for others. The government doesn't always have to debase the currency, it can tax you directly, or it can sell debt in exchange for dollars paid for by the funny money of foreign central banks, like China.



So? Why is that so bad? Who cares who pushes the ball if then it causes contracts to be let to private businesses who then create a huge chain down effect from things that then become needed.



It's bad for the same reason that stealing $1000 from you and spending it on hookers and cocaine is - I shouldn't be entitled to the fruits of your labor. Note that it doesn't matter what I spend the money on, I could invest it in something incredibly productive, but it doesn't change the fact that you were robbed.



Suppose the gov't thinks one of the best ways is to build up our infrastructure. Suppose they want to do it to the tune of trillions of dollars. What is so bad say if the gov't puts contractors to work, and pays the contractor, but then the money from there flows freely(no more gov't fianncial involvement)through the private sector, from that initial general contractor paying off subcontractors that include all the trades involved, suppliers, miners. manufacturers, truckers, clothiers, etc., etc.



First of all, central planning is horribly inefficient. Read Hayek's The Road to Serfdom (http://www.amazon.com/Road-Serfdom-Documents-Definitive-Collected/dp/0226320553/ref=sr_1_1?ie=UTF8&s=books&qid=1284959803&sr=8-1) to understand why. What are the "contractors" supposed to build? I hope it's not houses, as housing inventories are sky high, not counting the shadow inventory which will undoubtedly cause further losses in real estate. How much more "infrastructure" do we really need? Are you qualified to determine this? Are most politicians? I doubt it. Most importantly, who pays for this? If your plan is to print more "funny money", that's just a tax, called the "inflation tax (http://en.wikipedia.org/wiki/Inflation_tax)". If you want to borrow more, that's just a deferred tax which will further indebt the public and accelerate the total collapse of the US dollar (which is inevitable, and relatively soon). There is no free lunch. Your utopian plan won't work. Of course, that won't stop politicians from trying it (or, at least pretending to try it, and rewarding all of their friends and families with the "contracts" for a few kickbacks).



Why can't we do that if say we do not have to use our unbacked phoney money to pay a foreign country for materials in order to pull this off? If we have all the materials to make steel, concrete, glass, plastics, etc., etc., why can't we simply do make-work projects that gets the entire country going?



Because "make-work" projects are tantamount to malinvestment, which is why we're in the economic mess that we're in already. Also, there are too many looters and parasites (from the super-rich wall street bankers and politicians, to the impoverished welfare queens) for each productive person. All of the other waste that isn't fraud represents terrible investments, which need to be liquidated in a recession before the economy can move forward.



Why not carry it even a step farther and demolish existing houses and cars and put people back to work making new ones. Why wouldn't this work?



Really? With tent cities and the rates of homelessness (http://www.msnbc.msn.com/id/26776283/) mounting in cities across the US, you want to destroy real wealth? Why don't we instead stop propping up the real estate market and allow it to correct to where it should be, thereby allowing for more affordable homes?



Maybe this is how the pyramids were built. Maybe the gov't employed all the workers and look what they created? Look what all of mankind, even millenia later, get to see - something of lasting substance. Who cares that say private investors did not put up the capital needed to fund the pyramids. So it was done by the gov't.? So what?



The pyramids were built by slaves, and were superficial tributes to tyrannical rulers. The fact that they were really big and fancy didn't contribute much to the standard of living of those making them - which is of course the essence of the flaw of your manner of "thinking".



In our case, if this caused us to get oil wells up and pumping HERE (not abroad), and OUR steel mills to produce more, etc., etc., how could not this make for vibrant economy? And like I said, so it "cost" the gov't trillions? Just print up the money.



Because central planners, in addition to being largely parasites and looters, don't have enough good information to make economically beneficial decisions for everyone else. "Just printing up money" in the trillions would represent a hyperinflationary tax, that, in addition to arbitrarily rewarding certain special interests, would devastate the economy.



But, but, but - "It wouldn't be backed", you say? So? Why does it have to be backed? What good does gold do anyone, anyway? You sit there at your kitchen table ,with gold on the table, going, "Ooooohhh, look what I have!" ? Ya. What does that get you? That's just a racket industry anyway, isn't it? It isn't like gold is valuable because it is finite, and who holds the most holds the most wealth. Heck, they keep mining more of it! So then why is it so valuable? The value should come down when they keep finding more of it, you'd think. I think it is all rigged, like diamonds.



Gold is a currency with no counterparty risk that has served for thousands of years. It's good for preserving wealth, as well as being a hedge against negative real interest rates (not inflation, as most incorrectly assume). The paper gold market is indeed a racket, whereby the biggest banks have massive naked short positions and where each unallocated ounce is encumbered by roughly 45 ounces of paper claims. This has served to suppress the price, and the situation won't last forever. As far as the rate of gold inflation it's about 3% or less per annum.



Wouldn't you rather see everyone working, building great things, having something to show for it? Wouldn't that create GDP? And then more tax revenues would follow?



I'd rather the elite banking class stopped looting everyone else, and I'd rather the politicians let me, and everyone else decide what is "great" for us. GDP says nothing about standard of living, or quality of life.



Sounds too easy. What's wrong with such a plan?

Your plan sucks, and would make things much, much worse. Have you ever thought about running for office?

[KoihimeNakamura]

... what you just said makes no sense.

[daenku32]

So a bond is funny money?

[lomiller]

Start with the Prisoner's dilemma.

http://en.wikipedia.org/wiki/Prisoner's_dilemma

Individual actors generally will not make the best possible choice if they are not offered assurance most others will as well. Across the entire economy it makes most sense for private industry to horde their cash if everyone else is hording or invest/grow if everyone else is investing.

When no one is investing/growing private industry needs to assume no one else is going to invest and make the safe choice, which is not to invest either. If everyone does this, and they should if they are smart, no one invests and the recession deepens.

With government action at least some industries know there is going to be demand and will invest top grab a share. Since other businesses know there is going to be investment it now makes sense for them to jump on the bandwagon and invest themselves.

IOW private industry cannot get the ball rolling on its own. It will only respond once someone else gets the ball rolling.

This is a fairly rare event, something that really only comes up in a particularly deep recession but there are much more common cases where an outside agency (government) plays a critical role in allowing private industry to choose the best outcome. Take the taxi example above. What do you think would have happened if everyone were free to label their cabs Da Zhong? Would there be any incentive to at all for the real Da Zhong to provide a better but more expensive level of service? Clearly not, so without the correct government regulations nothing improves because there is no confidence other players will follow the same rules.

[kevinquinnyo]

Why not carry it even a step farther and demolish existing houses and cars and put people back to work making new ones. Why wouldn't this work?

Let's just address this one question for now.

This isn't an uncommon economic fallacy. So don't feel bad for making this mistake.

I've heard it in many forms, ranging from, "we should ban robots and automated systems so we can put more people to work," to "the best thing that could happen to the world economy is if aliens came down and engaged us in war, so that we could all get to work fighting back and rebuilding."

Both are 100% wrong.

See Broken Window Fallacy (http://en.wikipedia.org/wiki/Broken_window_fallacy)

[drkitten]

Let's just address this one question for now.

This isn't an uncommon economic fallacy. So don't feel bad for making this mistake.

I've heard it in many forms, ranging from, "we should ban robots and automated systems so we can put more people to work," to "the best thing that could happen to the world economy is if aliens came down and engaged us in war, so that we could all get to work fighting back and rebuilding."

Both are 100% wrong.

See Broken Window Fallacy (http://en.wikipedia.org/wiki/Broken_window_fallacy)

You shouldn't just parrot catch-phrases that you don't understand (like "broken window fallacy"). It's more complex than that.

The broken window fallacy is simply a failure to take into account opportunity costs. "What else would be done with the money," in other words. If you spend $100 to replace a new window, you don't have that $100 to re-paint your fence. The glazier is up $100, the painter is down $100 that he doesn't get, the direct economic effect is more or less a wash, and your fence still needs repainting later (so you don't get a new paint job out of it).

But on the other hand, if what you were going to do with the money otherwise was simply to light it on fire (or bury it in your back yard), then the economy as a whole is actually better off if someone breaks your window and you have to replace it. The broken window fallacy doesn't apply because the opportunity cost is next to nothing.

And between the credit crunch (during which banks weren't lending money out, and as a result might as well have been burying their cash reserves in the back yard), and the increased savings of the "paradox of thrift" (in which people were putting their money into the bank, to be buried), forcibly tearing down houses and wrecking cars might well be a good idea.

Of course, now the credit crunch is over; what would have been a good idea in late 2008 is no longer necessarily a good idea. But we've still got a huge problem of companies sitting on cash (and banks lending out much less than "normal"), which is dragging on the economy, and encouraging people to spend instead of save is still a good idea.

[Cainkane1]

If a government atempts to stimulate the economy using money they do it through taxation. The taxed citizens have less money to spend hence they purchase less. If the companies stimulate the economy its through advertisement and investments of their own money.

[drkitten]

If a government atempts to stimulate the economy using money they do it through taxation. The taxed citizens have less money to spend hence they purchase less.

Er, no. Actually, the government tries to stimulate the economy through deficit spending; the idea is that they spend money now that they may or may not try to collect through taxation later (the other option is just to let inflation take care of it). The effect is that the citizens have more money in their pockets, not less.

Even if the government did try to stimulate the economy through taxation, it's easy enough to make sure that taxed citizens have more money to spend instead of less, by simply choosing the right structure of taxes. An obvious example of this is the proposed 0.1% tax on stock transactions. Buying stocks is not spending money, but investment (it's technically deferred consumption); if the tax were set high enough to actually deter investment, the other choice more or less is forced to be immediate consumption (i.e. spending). Similarly, a (higher) tax on corporate cash holdings would encourage companies to spend instead of retain cash, which would put more money into circulation and increase spending.

But the most egregious error is simply that the economy is not zero-sum; if the stimulus money results in increased economic growth, then the taxed citizens have more money to spend, not less. If a 1% tax increase results in an across the board 3% growth, then everyone's better off by 2%.

[Random]

If a government atempts to stimulate the economy using money they do it through taxation. The taxed citizens have less money to spend hence they purchase less. If the companies stimulate the economy its through advertisement and investments of their own money.

Yes, taxes are a drain on the economy. But with deficit spending, you can spend the money now to get the economic growth you need in a downturn, then raise taxes later when the economy is moving on its own and can afford to be slowed down a little.

That’s the whole point of counter-cyclical financial policy. You are basically using government taxation and spending policies to shuffle economic activity backwards and forwards through time. Taking economic activity from periods of high growth, and moving them to periods of low or negative growth.

Of course, our problem for the last few decades has been politicians cutting taxes and increasing spending, then forgetting that things still have to be paid for later.

[Tippit]

Start with the Prisoner's dilemma.

http://en.wikipedia.org/wiki/Prisoner's_dilemma

Individual actors generally will not make the best possible choice if they are not offered assurance most others will as well. Across the entire economy it makes most sense for private industry to horde their cash if everyone else is hording or invest/grow if everyone else is investing.



The big problem is that you, a would-be central planner, doesn't know what the "best choice" is for spending my money is, and far more importantly, neither are you entitled to spend it. First of all, you're using a loaded term like "hoarding" instead of the more innocuous "saving". Why is the private decision to save money so anathema? It merely represents consumption based on needs and wants, as opposed to unlimited, mindless consumption. How can the latter possibly be good for the economy, or even the environment? Demand should be driven organically by consumers, not bestowed by central bank/government policy as handouts at the expense of taxpayers and savers.



When no one is investing/growing private industry needs to assume no one else is going to invest and make the safe choice, which is not to invest either. If everyone does this, and they should if they are smart, no one invests and the recession deepens.



On the contrary, it's only smart to invest when you can obtain returns that are commensurate with, or higher than the risk taken. Thanks to the inflation tax, the choice to save is robbed from us, so "investing" is forced, no matter what the economic conditions are.



With government action at least some industries know there is going to be demand and will invest top grab a share. Since other businesses know there is going to be investment it now makes sense for them to jump on the bandwagon and invest themselves.



This ignores the cost of "government action", which requires that people get taxed first, in order that government can bestow it's favors on whichever industry best serves politicians or their friends.



IOW private industry cannot get the ball rolling on its own. It will only respond once someone else gets the ball rolling.



This is ridiculous, and by extension, wrong. Where did you get the idea that no investment can happen without central planning? The centrally planned educational system, perhaps?



This is a fairly rare event, something that really only comes up in a particularly deep recession but there are much more common cases where an outside agency (government) plays a critical role in allowing private industry to choose the best outcome. Take the taxi example above. What do you think would have happened if everyone were free to label their cabs Da Zhong? Would there be any incentive to at all for the real Da Zhong to provide a better but more expensive level of service? Clearly not, so without the correct government regulations nothing improves because there is no confidence other players will follow the same rules.

I agree, trademark law is important. You could also argue that were it not for infrastructure spending, the taxis wouldn't have roads to drive on, or they would all be slow moving toll roads. But it's a leap of logic to suggest that while central planning has its role, that it should be ubiquitous.

[Tippit]

You shouldn't just parrot catch-phrases that you don't understand (like "broken window fallacy"). It's more complex than that.



Yes. Apparently only government subsidized pseudo-academic types can possibly hope to understand such arcane concepts as the broken window fallacy. Please, do enlighten us.



But on the other hand, if what you were going to do with the money otherwise was simply to light it on fire (or bury it in your back yard), then the economy as a whole is actually better off if someone breaks your window and you have to replace it. The broken window fallacy doesn't apply because the opportunity cost is next to nothing.



Really? Because someone elects to defer their consumption (and willfully subject it to the ravages of the inflation tax) by burying it, this actually serves as justification for destroying real wealth, in your little mind? How did you calculate that the opportunity cost is "nothing", without knowing the duration for which the money is buried? The opportunity for a saver would be lost in the future. If someone buried $10,000 for one year, and you discounted that by the risk-free rate, or the rate of inflation, it would still amount to a lot more than "nothing". Even if you discounted the money over thirty years, it would still be a lot more than nothing.

And all of this is beside the point that your warped analogy and use of the term opportunity cost are completely misunderstood by you. Lets say that unlike you, someone engages in something productive, and earns $10,000. If they elect to bury that in their backyard, not only have they already benefitted society by their production, but they have also deferred their consumption, that is, the scarce goods and services they otherwise would have consumed were available for someone else to consume. This has the effect of lowering the prices of goods and services for everyone else. It's good for everyone else if people produce more than they consume. Eventually production and consumption will reach equilibrium. This should be obvious.

You myopically focus on one effect of saving, which is less consumption now, and ignore the fact that this leaves more for you to consume now, as well as ignoring the deferred consumption by the saver in the future.



And between the credit crunch (during which banks weren't lending money out, and as a result might as well have been burying their cash reserves in the back yard), and the increased savings of the "paradox of thrift" (in which people were putting their money into the bank, to be buried), forcibly tearing down houses and wrecking cars might well be a good idea.



If nothing else, this is signature worthy material from a supposed PhD. Can I use it? It would be an honor. Lol.



Of course, now the credit crunch is over; what would have been a good idea in late 2008 is no longer necessarily a good idea. But we've still got a huge problem of companies sitting on cash (and banks lending out much less than "normal"), which is dragging on the economy, and encouraging people to spend instead of save is still a good idea.

So, destroying hundreds of billions of dollars worth of real wealth as real estate is no longer necessarily a good idea, but you're willing to entertain the possibility. Good to know.

I guess acknowledging the fact that a fiat-money driven boom cycle led to the speculation in and overproduction of homes, and letting the real estate market settle on realistic (lower) prices is out of the question. Nah. Lets just nuke the houses instead.

[Tippit]

Er, no. Actually, the government tries to stimulate the economy through deficit spending; the idea is that they spend money now that they may or may not try to collect through taxation later (the other option is just to let inflation take care of it). The effect is that the citizens have more money in their pockets, not less.

Even if the government did try to stimulate the economy through taxation, it's easy enough to make sure that taxed citizens have more money to spend instead of less, by simply choosing the right structure of taxes. An obvious example of this is the proposed 0.1% tax on stock transactions. Buying stocks is not spending money, but investment (it's technically deferred consumption); if the tax were set high enough to actually deter investment, the other choice more or less is forced to be immediate consumption (i.e. spending). Similarly, a (higher) tax on corporate cash holdings would encourage companies to spend instead of retain cash, which would put more money into circulation and increase spending.

But the most egregious error is simply that the economy is not zero-sum; if the stimulus money results in increased economic growth, then the taxed citizens have more money to spend, not less. If a 1% tax increase results in an across the board 3% growth, then everyone's better off by 2%.

All "stimulus" is funded by taxation, make no mistake. Whether it is direct taxation, money-printing, or borrowing, it all represents a tax. In the case of borrowing, the principal and interest have to be paid via either more borrowing or taxation in the future. When you consider that much of the foreign exchange used to purchase the dollars that are used to purchase government bonds is merely the result of money printing by say, the Bank of China, it represents a tax on the Chinese.

[drkitten]

All "stimulus" is funded by taxation, make no mistake. Whether it is direct taxation, money-printing, or borrowing, it all represents a tax.

In Tippit-speak where "tax" means "noun."

Taxation, money-printing, borrowing, elephant, licence plate, light bulb, they're all a "tax" from the point of view of Tippit's very specialist view of English grammar.

[JoeTheJuggler]

I'm not sure if this addresses Iamme's question directly, but I think the issue in today's economy is that "private enterprise" (or at least the financial sector) is sitting on their cash right now. If banks were lending (or at least lending more freely), there would be no need for government stimulus spending.

I think that's the main difference. As several people have pointed out, the government can run a deficit, so it can spend money just for the sake of stimulating the economy rather than based on real risks of not getting a return on the investment (or enough of a return or a quick enough return). The motivations of government and private enterprise in spending money are very different.

ETA: I should also mention that the difference in motivation also extends to what the money is spent on. Private enterprise seldom builds roads, bridges, dams and so on. I was merely speaking of stimulus spending above. Private enterprise never spends money just to stimulate the economy. They spend money to make a profit.

[A Christian Sceptic]

In Tippit-speak where "tax" means "noun."

Taxation, money-printing, borrowing, elephant, licence plate, light bulb, they're all a "tax" from the point of view of Tippit's very specialist view of English grammar.

It would be helpful for you to explain how money-printing (future inflation, devaluing of a currency) and borrowing (future tax payments) are not the same as an outright tax. The only difference I can see is that a tax happens now where those other two are deferred to the future.

[KoihimeNakamura]

It would be helpful for you to explain how money-printing (future inflation, devaluing of a currency) and borrowing (future tax payments) are not the same as an outright tax. The only difference I can see is that a tax happens now where those other two are deferred to the future.

If the economy recovers, the tax revenue makes up for the first two. If it doesn't, other measures are typically taken.

[Tippit]

It would be helpful for you to explain how money-printing (future inflation, devaluing of a currency) and borrowing (future tax payments) are not the same as an outright tax. The only difference I can see is that a tax happens now where those other two are deferred to the future.

Monetary inflation happens immediately as the money is spent, the tax isn't deferred. As soon as anyone exchanges counterfeit or newly created money for scarce goods and services, it serves to bid up the prices of these higher than they otherwise would have been. Note that monetary inflation may not result in actual price inflation, because economic growth serves to offset (and obscure) this. The punitive effects on everyone else who don't get to spend the new money remain in spite of this, as we lose the opportunity to buy things at cheaper prices than they would have been.

Interest paid on government debt of course has to be obtained via taxation (or yet more borrowing), so the future interest payments represent corresponding future tax liabilities. If the buyer of our debt is a foreign central bank who is printing their own fiat money to be used in exchange for dollars for the purpose of buying it, then that reflects an inflation tax levied on the citizens of that country (or, more accurately, the holders of that country's currency).

[A Christian Sceptic]

Monetary inflation happens immediately as the money is spent, the tax isn't deferred. As soon as anyone exchanges counterfeit or newly created money for scarce goods and services, it serves to bid up the prices of these higher than they otherwise would have been. Note that monetary inflation may not result in actual price inflation, because economic growth serves to offset (and obscure) this. The punitive effects on everyone else who don't get to spend the new money remain in spite of this, as we lose the opportunity to buy things at cheaper prices than they would have been.

The printing is done right away, but is the inflation of the price of goods and services immediate? I would think it would be somewhat delayed until enough people have the extra printed money in order to begin all bidding on overlapping products, and then a delay for those spent dollars to trickle out into other areas. I guess that's what I meant by delayed to the future.

I can see why this route would be liked by politicians - they don't have to do a yay or nay vote on a specific tax.

[Iamme]

The "ball" is already rolling. The government has to slow the ball down for some before it speeds it up for others.

Sounds profound. Give me one example as to what you mean.

The government doesn't always have to debase the currency, it can tax you directly, or it can sell debt in exchange for dollars paid for by the funny money of foreign central banks, like China.

Please only state examples of what can happen in our current bad situation here. You say the gov't can tax us directly? What if they run out of people to tax, because people no longer have jobs?



It's bad for the same reason that stealing $1000 from you and spending it on hookers and cocaine is - I shouldn't be entitled to the fruits of your labor. Note that it doesn't matter what I spend the money on, I could invest it in something incredibly productive, but it doesn't change the fact that you were robbed.

Why does my plan rob people? Is it the possible inflation aspect? The fact gov't money will be doled out, while the supplies that can purchased remain limited?

When infrastructure jobs are let out say for private bid, what is happening with THAT as far as the economy goes? Building interstate roads and bridges, etc. does not come from the private sector. It is financed by the gov't and forced on the tax payer. So then I guess even THAT must be bad, technically, and is technically ALSO stealing from the tax payer?



What are the "contractors" supposed to build? I hope it's not houses, as housing inventories are sky high,

What if we HAD to not build more houses, but replace houses. What if entire cities were bombed? Let's do that sort of thing, even though we have not been bombed. Have someone bulldoze all blighted homes and businesses, and put people back to work rebuilding the existing ones. Not adding MORE houses/businesses. Just replacing.

If a country was bombed, you mean that if that country, like the U.S., had all the resources to rebuild with, that the country would somehow get poorer?, if everyone was working, rebuilding the country? I'd think it would get richer. Look at all the brand new nice stuff it would have to show for it. And look at all the other businesses that once again would produce more goods, due to the fact more people were working and could afford to buy more stuff.

[JoeTheJuggler]

It would be helpful for you to explain how money-printing (future inflation, devaluing of a currency) and borrowing (future tax payments) are not the same as an outright tax. The only difference I can see is that a tax happens now where those other two are deferred to the future.

Levying taxes increases federal revenues (and decreases the federal budget deficit or increases the federal budget surplus). Borrowing money is pretty much the opposite. Spending/borrowing on the one hand and taxation on the other are pretty much the opposite of each other.

[ETA: To make an analogy: my mortgage is borrowing money. It is not the same thing as income. I will need to raise money--probably through income--to pay my mortgage, but the loan is not equivalent to income. In fact, in my personal budget, they're the opposite. One is a debit and the other a credit.]

I understand that increasing spending without specifying a revenue source means that at some point we will need to collect revenues to pay for that spending, which seems to be the point you're after.

[Iamme]

Your plan sucks, and would make things much, much worse. Have you ever thought about running for office?

Maybe it DOES suck. I posted the thread to see if my reasoning is flawed, and to read WHY it is flawed.

Me thought about running for office? Surely you don't think I'd say yes.

[JoeTheJuggler]

What if we HAD to not build more houses, but replace houses. What if entire cities were bombed? Let's do that sort of thing, even though we have not been bombed. Have someone bulldoze all blighted homes and businesses, and put people back to work rebuilding the existing ones. Not adding MORE houses/businesses. Just replacing.

If a country was bombed, you mean that if that country, like the U.S., had all the resources to rebuild with, that the country would somehow get poorer?, if everyone was working, rebuilding the country? I'd think it would get richer. Look at all the brand new nice stuff it would have to show for it. And look at all the other businesses that once again would produce more goods, due to the fact more people were working and could afford to buy more stuff.

At least one problem with this approach is that housing is not fungible. There is a range of low- to high-rent/mortgage housing types. Rebuilding all the housing would mean there are no 100 year old buildings to buy or rent very cheap. That is, there are some structures that could not be rebuilt and rented at their current rates.

Also, there are issues of architectural and historic concerns. My city even has widespread housing conservancy districts (somewhat stricter inspections and such) to help preserve the character of these neighborhoods.

And there's also the big question of the specifics of such a transition. I for one would not want to be told I have to leave my house so it can be demolished and rebuilt. (My house is 117 years old.) I definitely wouldn't want to be paid a fair market value for my house (especially right now!!) Even if I were, who would pay that?

ETA: However, your basic idea is similar to the idea behind massive public spending for rebuilding infrastructure. In this case, we'd have the stimulus benefit (lots of workers getting a job right now) plus the indirect economic stimulus of sorely needed infrastructure improvement, plus the long-term economic benefit of making more infrastructure more efficient (more "green") when possible.

[Bob Blaylock]

…forcibly tearing down houses and wrecking cars might well be a good idea.


Let's start with yours. You're such a big advocate of destroying valuable assets for the alleged good of the economy, let's start by destroying YOUR assets.

[PixyMisa]

drkitten is right. You can't sustain an economy that way - it's a net loss - but you might kick-start a stalled economy.

[drkitten]

Let's start with yours. You're such a big advocate of destroying valuable assets for the alleged good of the economy, let's start by destroying YOUR assets.

You just offered to buy a new and better house for me? Great! When can you start!

Will you buy me a better car to replace my old 2003 beater, too?

Bear in mind the the original proposal was not just to destroy, but to replace as well. So if you're offering to deplete your own savings to improve my local economy, go ahead.

[drkitten]

It would be helpful for you to explain how money-printing (future inflation, devaluing of a currency) and borrowing (future tax payments) are not the same as an outright tax.

Because words have meanings?

As Joe pointed out, you'd not be foolish enough to think that wages paid to you are the same as a loan you put on your credit card.

You can think of it this way, if you like. You want to buy a $500 widget, but you only have $400 in your bank account.

You can : earn more money, via a raise or working overtime. This puts money into your pocket now, with no strings attached, just like taxes put money into the government coffers.
You can : put it on your VISA card. This puts money in your pocket now -- well, goods that you paid for with money now -- but you have to pay it back later. Just like the government borrowing.
You can : wait for the goods to go on sale or hunt for coupons so you can buy them more cheaply. This is essentially allowing external economic forces to do the heavy lifting for you, just like when the government allows the currency to inflate.

[kevinquinnyo]

You shouldn't just parrot catch-phrases that you don't understand (like "broken window fallacy"). It's more complex than that.


I understand it quite well, thanks.

Yes, it actually is more complicated than that. More important than understanding the hidden costs to these make work or destroy to rebuild proposals, is understanding that true wealth is not about jobs or money, it's about productivity.

I could make my own economy speed up, and create more work for myself by ripping out the heating element in my dishwasher, so I have to create a new job, more hours of labor, doing the dishes by hand. All I've done is decrease productivity. If you destroy a functional asset, such as a home, you have decreased productivity. We now HAVE to build new ones. We don't GET to build new ones.

You like to mingle the concept of spending our way out of a deflationary spiral with the concept of the broken window fallacy. They are 2 different concepts. If you destroy assets in order to "make work," it's still the broken window fallacy, and it's still not productive. If it happens to be a viable solution to a deflationary spiral, that doesn't mean it's not still the "broken window fallacy."

[KoihimeNakamura]

..yes, that is part of the point. If you have to destroy something, you have to spend money replacing it which benefits the economy. Which is what he's saying: you need to take that into consideration.

[Tippit]

..yes, that is part of the point. If you have to destroy something, you have to spend money replacing it which benefits the economy. Which is what he's saying: you need to take that into consideration.

/facepalm

No, it's not part of the point. It proves there is no point. Destroying viable assets is a lose/lose scenario for everyone. Robbing everyone through taxation to pay for the destruction and rebuilding of homes is utterly regressive, and would be devastating to the economy. If the population weren't taxed to begin with, they could buy more of everything they really need and want, encouraging the production of more things everyone needs and wants, as opposed to the production of what we have too many of - houses. When you hear the talking heads on CNBC joke about taking a wrecking ball to the housing inventory, that's with the intention of NOT rebuilding them, so as to prop up real estate prices.

We would be far better off simply inflating the currency and issuing welfare checks to everyone, than to actually destroy existing homes. At least then the spending would reflect what we need and want, as opposed to homebuilders wasting time building what is already in great supply. Homes don't need to be destroyed, the Fed has to stop propping up Fannie and Freddy and the housing market needs to correct so that the homebuyer at the margin can buy them and move in.

How a supposed econ professor would seriously consider destroying homes when we have tent cities and record numbers of homeless is astounding. The fact that presumably intelligent people on a skeptics forum would endorse this is mind-boggling.

[A Christian Sceptic]

..yes, that is part of the point. If you have to destroy something, you have to spend money replacing it which benefits the economy. Which is what he's saying: you need to take that into consideration.

Some of these arguments ....

Let's see - I paid x amount of dollars on my house. Destroyed it - now I paid y amount on my house. Now the economy is better off? And I'm better off? I just paid x + y and only have one house to show for it instead of two.

This is some basic math.

I'm beginning to think maybe it's to simple for some people to see ...

[lomiller]

Let's see - I paid x amount of dollars on my house. Destroyed it - now I paid y amount on my house. Now the economy is better off?

yes
Edit change that to "possibly" This would not help an overheating economy

And I'm better off?

Probably not


Of course neither of your questions is really the righe one. The correct question if you and a million other people built 2 houses to get 1 are you better off, and the correct answer is: maybe.

[A Christian Sceptic]

Of course neither of your questions is really the righe one. The correct question if you and a million other people built 2 houses to get 1 are you better off, and the correct answer is: maybe.

Maybe?

Please explain how.

[Bob Blaylock]

Let's start with yours. You're such a big advocate of destroying valuable assets for the alleged good of the economy, let's start by destroying YOUR assets.

You just offered to buy a new and better house for me? Great! When can you start!

Will you buy me a better car to replace my old 2003 beater, too?

Bear in mind the the original proposal was not just to destroy, but to replace as well. So if you're offering to deplete your own savings to improve my local economy, go ahead.


No, I do not consent to pay for a new house or a new car for you. Nor did I consent to pay for new cars for all the recipients of “Cash for Clunkers” handouts. I certainly never consented to being forced to help buy for others better cars than what I can afford for myself.

[drkitten]

Maybe?

Please explain how.

Because the builders that rebuilt your and your neighbors houses were able to keep the local Home Depot in business, so it didn't have to close down. This, in turn, kept the local mall that it anchors from closing its doors. As a result, there are about 500 more jobs in retail in your town than there would have been if the houses had not been replaced.

There are also 500 more jobs in supply than there would have been, because these stores that didn't close down still need goods. The builders themselves have similarly been able to stay in business, so there's about 250 jobs in construction. The people who work in these jobs are still making money, so they're still buying flowers for their special someone at your florist shop.

And, of course, you get the convenience of being able to hire local contractors if you need something done in your house, or of being able to shop locally for stuff instead of having to travel to the next county to get lumber and paint.

[drkitten]

I certainly never consented to being forced to help buy for others better cars than what I can afford for myself.

Actually, you did. It's part of the burden and obligations associated with the privilege of citizenship. If you want to live in a society where there are no such obligations, Somalia awaits.

[A Christian Sceptic]

Because the builders that rebuilt your and your neighbors houses were able to keep the local Home Depot in business, so it didn't have to close down. This, in turn, kept the local mall that it anchors from closing its doors. As a result, there are about 500 more jobs in retail in your town than there would have been if the houses had not been replaced.

There are also 500 more jobs in supply than there would have been, because these stores that didn't close down still need goods. The builders themselves have similarly been able to stay in business, so there's about 250 jobs in construction. The people who work in these jobs are still making money, so they're still buying flowers for their special someone at your florist shop.

And, of course, you get the convenience of being able to hire local contractors if you need something done in your house, or of being able to shop locally for stuff instead of having to travel to the next county to get lumber and paint.

Except - I'm short a house and out all the money for the first house. All what you describe would have happened if I bought / built a second house but in addition there would be a second house ALSO.

So why is having one less house BETTER than having one more house? Why is having one less house WEALTHIER than having two house? Please explain.

[drkitten]

Except - I'm short a house and out all the money for the first house.

Without the money the builders earned rebuilding the houses, they wouldn't have been able to remain in business; the secondary effects would have been a disaster for the local economy.

So you get to trade "being out the money for the first house" with "being out all the money you put into your now-failed florist shop."

All you describe would have happened but in addition there would be a second house ALSO.

Not if there's no room for a second house.

[lomiller]

Except - I'm short a house and out all the money for the first house. All what you describe would have happened if I bought / built a second house but in addition there would be a second house ALSO..


Yes you are out the first house, but in it’s place you have a good paying job without which you have no house at all.
So why is having one less house BETTER than having one more house? Why is having one less house WEALTHIER than having two house? Please explain.

You are the one who needs to explain that as you are the one who is completely discounting the case where you have no house at all without the program. (You are guilty of the broken window fallacy because you fail to consider all the spin off effects)

[A Christian Sceptic]

Yes you are out the first house, but in it’s place you have a good paying job without which you have no house at all.


OK - I'll be sure to thank the next arson I meet for keeping me employed.


You are the one who needs to explain that as you are the one who is completely discounting the case where you have no house at all without the program. (You are guilty of the broken window fallacy because you fail to consider all the spin off effects)

People here are arguing the economy is better if my window is broken or better yet my house is burned down.

And I'm the one guilty of the "broken window fallacy"?

I'm totally beginning to understand now!

What some are saying is that I should be grateful as my property is dystroyed. Whether it's the government or a vandal - I should be grateful that my window or house was destroyed because not only is it helping everyone else and keeping the economy afloat, but I'm still employed.

I wish some of you would stop be so selfish and burn your house down already - to help out the economy. The longer you postpone burning down your house the more damage you are doing to the economy.

It's not the paradox of thrift that's holding back the economy - it's the paradox of not-burning down your house. The longer any of us postpone burning down our houses the worse off the economy will be!

It's that simple - if we all burn down our houses simultaneously we will improve the economy multiple time over!!!!!

It's so simple - I'm so amazed that I never saw this before.

[lomiller]

OK - I'll be sure to thank the next arson I meet for keeping me employed.

You are still guilty of falling into the broken window fallacy. It says you have to look at all the consequences rather then presuming an event is either bad or good.

People here are arguing the economy is better if my window is broken or better yet my house is burned down.

And I'm the one guilty of the "broken window fallacy"?



You shouldn’t try to invoke the broken window fallacy if you don’t understand it.

You have been told multiple times that it’s a caution that all the spin off effects need to be considered. You are trying to ignore the spin off effects altogether and go right to making your conclusions. Yes, you are guilty of exactly what the broken window fallacy is advising against.


I wish some of you would stop be so selfish and burn your house down already - to help out the economy. The longer you postpone burning down your house the more damage you are doing to the economy.


See the prisoners dilemma. Individual will not, cannot, rationally volunteer to do the things that are in common best interest without assurance that the other parties will do the same. Those people who prefer to leach whenever they can make this impossible.

[A Christian Sceptic]

You are still guilty of falling into the broken window fallacy. It says you have to look at all the consequences rather then presuming an event is either bad or good.



You shouldn’t try to invoke the broken window fallacy if you don’t understand it.

You have been told multiple times that it’s a caution that all the spin off effects need to be considered. You are trying to ignore the spin off effects altogether and go right to making your conclusions. Yes, you are guilty of exactly what the broken window fallacy is advising against.



See the prisoners dilemma. Individual will not, cannot, rationally volunteer to do the things that are in common best interest without assurance that the other parties will do the same. Those people who prefer to leach whenever they can make this impossible.

You need to re-study the Broken Window Fallacy.

[drkitten]

People here are arguing the economy is better if my window is broken or better yet my house is burned down.

No, people are arguing that if the process of repairing your window or rebuilding your house fixes the economy, you can get a net benefit.

Obviously there are some tradeoffs here. The cost of your window is X; the benefit from not losing your florist shop and having your house repossessed is Y. If Y>>X, then having your window broken actually helped you.

Or are you really suggesting you would prefer to be living out of a refrigerator box looking at the still-intact window that the bank now owns?


And I'm the one guilty of the "broken window fallacy"?

Absolutely. The broken window fallacy is simply not taking into account both sides of the equation. "Normally" people forget about X, the cost of the window (more formally, the opportunity cost of the resources that went into fixing the window) but notice Y, the economic benefits to be gained by replacing it. In this case, you're fixating on X but ignoring Y.

And, of course, there's also a situational aspect as well. Under "normal" times, the builders aren't running close enough to the edge that a marginal slowdown in business will cause them to shut down, or that a marginal increase could bring them back and start them hiring again. But, of course, these weren't -- aren't -- "normal" times, as evidenced by the credit crunch and unemployment numbers.


What some are saying is that I should be grateful as my property is dystroyed.

Not really. You would probably prefer that someone else's property was destroyed, just as you would prefer that someone else buy the abandoned crack house across the street from you that's lowering your property values. If someone else bought the house and tore it down, your house might be worth another $10,000. (That's a well-documented effect; ask any realtor. Abandoned houses lower property values in the neighborhood.)

But that's the paradox of thrift. Everyone wants it to happen, but no one is willing to spend the money to make it happen, even when everyone as a whole would get more out of it. If everyone on the block chips in $5,000, you can buy that house and tear it down as a group. Or you can wait until someone ponies up the $30,000 themselves, but in that case the crack house is likely to be there for a while.

Or the city can buy it, using your tax money to do it.

[A Christian Sceptic]

No, people are arguing that if the process of repairing your window or rebuilding your house fixes the economy, you can get a net benefit.


I get a net benefit even though I've paid for two windows (or two houses) and only have one window or house? :rolleyes:



Absolutely. The broken window fallacy is simply not taking into account both sides of the equation. "Normally" people forget about X, the cost of the window (more formally, the opportunity cost of the resources that went into fixing the window) but notice Y, the economic benefits to be gained by replacing it. In this case, you're fixating on X but ignoring Y.



The whole Broken Window Fallacy is about X. Sorry about fixating on X.:boggled:


Not really. You would probably prefer that someone else's property was destroyed, just as you would prefer that someone else buy the abandoned crack house across the street from you that's lowering your property values. If someone else bought the house and tore it down, your house might be worth another $10,000. (That's a well-documented effect; ask any realtor. Abandoned houses lower property values in the neighborhood.)


No I don't, because I don't agree that we are all better off if property is destroyed. All you're doing is wasting money. time, effort - spending money to recreate what was already created and you're left with less as an end result.

[drkitten]

I get a net benefit even though I've paid for two windows (or two houses) and only have one window or house?

That's right. If it's a choice between paying for two windows and having one house, or paying for only one window and losing your house because your job evaporated, you have a net benefit.



The whole Broken Window Fallacy is about X.

No, it's not. It's about not keeping track of all the effects.


No I don't, because I don't agree that we are all better off if property is destroyed.

Would you be willing to pay $5000 to destroy something that's lowering your wealth by $10000?

[A Christian Sceptic]

That's right. If it's a choice between paying for two windows and having one house, or paying for only one window and losing your house because your job evaporated, you have a net benefit.


I'd rather keep my window, keep my house, and buy a third thing - maybe even add a new window.

NOT pay for TWO windows and only end up with one window.

BECAUSE THOSE are the two options. And only the second one makes me and everyone else better off and wealthier.




No, it's not. It's about not keeping track of all the effects.



Nope - but it's clear you're set in your way of thinking about the fallacy.

Knowing all you know - do you live by it or not? Do you periodically destroy your own property to help out the economy or not? (I should add - that you've been arguing destroying any property - not just the equivalent of run down, abandoned, crack houses.) And if you're not willing to destroy your own property why are you so willing to destroy someone elses? Never mind - I know the answer.

[drkitten]

I'd rather keep my window, keep my house, and buy a third thing - maybe even add a new window.

That's not an option. Perhaps you missed the whole "economic crash" thing?

[Bob Blaylock]

What some are saying is that I should be grateful as my property is dystroyed. Whether it's the government or a vandal - I should be grateful that my window or house was destroyed because not only is it helping everyone else and keeping the economy afloat, but I'm still employed.


…or someone else's property destroyed, but you forced to pay for it.

I can't help but be reminded of Romans 1:22 (http://scriptures.lds.org/en/rom/1/22#22): “Professing themselves to be wise, they became fools.” We have here, in this thread (and a few other similar threads) people preaching the Broken Window Fallacy (http://en.wikipedia.org/wiki/Parable_of_the_broken_window) at us, and professing to be smarter and wiser than those of us who can see these preachings for the foolish nonsense that they are.

[Bob Blaylock]

I certainly never consented to being forced to help buy for others better cars than what I can afford for myself.

Actually, you did. It's part of the burden and obligations associated with the privilege of citizenship. If you want to live in a society where there are no such obligations, Somalia awaits.


No, I did not. See the last phrase of the Fifth Amendment. “…nor shall private property be taken for public use, without just compensation.”

[A Christian Sceptic]

That's not an option. Perhaps you missed the whole "economic crash" thing?

It absolutely is too an option - by your own admission.

You are saying

A) I have X amount of money that needs to be spent.
B) It is better for the economy on the whole for me to spend the money
C) If I spend the money it will be a net benefit to me because I will stay employed and keep my house.

But then you say

D) Someone should break my perfectly good window so I spend my money for the greater good and I should just be greatful because the spent money now keeps me employed and keeps me in a house.

SO ...

If all I need to do is spend the equivilant of a window to keep me employed and keep me in the house I'm better off not having to replace an intentionally broken window, but spend it on something else.

If me spending my money is all that needs to happen to help the economy (and the greater good) - who the hell are you (in the general sense, of course) to dictate how I spend the money? The money is spent one way or the other - which is all you say matters - the paradox of thrift is not happening. Get your nose out of my wallet. And quit stealing my window by breaking it. And quit breaking other peoples windows and then forcing me to pay for it.

[Bob Blaylock]

If me spending my money is all that needs to happen to help the economy (and the greater good) - who the hell are you (in the general sense, of course) to dictate how I spend the money? The money is spent one way or the other - which is all you say matters - the paradox of thrift is not happening. Get your nose out of my wallet. And quit stealing my window by breaking it. And quit breaking other peoples windows and then forcing me to pay for it.


Hear; hear! Alas, some people will never understand this, it seems. Or, more likely, it best serves their agenda to pretend that they don't understand this.

[drkitten]

It absolutely is too an option - by your own admission.

You are saying

A) I have X amount of money that needs to be spent.
B) It is better for the economy on the whole for me to spend the money
C) If I spend the money it will be a net benefit to me because I will stay employed and keep my house.


Mostly. Try C) if you and your neighbors spend your (joint) money, it will be a net benefit to all of you and you will all (be more likely to) stay employed and keep your house.


And D) If you and your neighbors do not spend the money, you will not stay employed and lose your house.



If all I need to do is spend the equivilant of a window to keep me employed and keep me in the house I'm better off not having to replace an intentionally broken window, but spend it on something else.

Well, you'll need to persuade your neighbors to upgrade their houses, too.

But, yeah, you've basically got it right. The problem is that people weren't doing that in large enough numbers, which is why the government needed to step in and use public money to do it, since the government can act on behalf of you and your neighbors.

Re-read the "paradox of thrift." And look up "public good" while you're at it.

[drkitten]

Hear; hear! Alas, some people will never understand this, it seems. .

Yes. Rational people make a point of never "understanding" things that are blatantly wrong, if they can avoid it.

That's how you can tell them from Republicans.

[Random]

Couple of different things here:

1) Cash for Clunkers was a net loss. It still did the job it was supposed to do. Cars were destroyed before they otherwise would have been and the new cars that were purchased would have been purchased in the future anyway. It did accomplish the purpose of getting people to buy cars right now however. Yes, those cars will not be bought in the future, but we might not need that economic activity as badly in the future as we need it now. It short, it cost money, and it worked.

2) If America has ever been caught in the Paradox of Thrift, it is caught there now. Banks are sitting on large amounts of money because they would have to be crazy to lend people money in this economy. Businesses are not hiring until consumer demand picks up since it is crazy to hire employees if there is no demand. And consumers are trying to cuts costs and save money since it is crazy to spend money needlessly if you are facing an uncertain employment future. Everyone is waiting for someone else to move, and so no one is going anywhere.
The whole point of the Paradox of Thrift is not that government knows what it is doing better than the individual. The point is that the best course of action for the individual is to save money, but if everyone does this, everyone is worse off than if they had all spent money. Rational individual behavior leads to an irrational collective outcome.

[A Christian Sceptic]

Well, you'll need to persuade your neighbors to upgrade their houses, too.


Replacing the window you intentionally broke to force me to spend my money is not an upgrade to my house. It's theft of my money and manipulation of where my money goes. And it does not leave me better off - I'm out the cost of the replacement window.


Re-read the "paradox of thrift." And look up "public good" while you're at it.

I don't need to. You're very clear what you mean. Me saving my money to spend later combined with other people saving their money to spend later amplifies an economic downturn. Since you're operating on behalf of the greater good you feel fully justified in forcing me to spend when and how YOU want by breaking my window.

[KoihimeNakamura]

I don't need to. You're very clear what you mean. Me saving my money to spend later combined with other people saving their money to spend later amplifies an economic downturn. Since you're operating on behalf of the greater good you feel fully justified in forcing me to spend when and how YOU want by breaking my window.

Stop strawmanning.

[Bob Blaylock]

Replacing the window you intentionally broke to force me to spend my money is not an upgrade to my house. It's theft of my money and manipulation of where my money goes. And it does not leave me better off - I'm out the cost of the replacement window.·
·
·I don't need to. You're very clear what you mean. Me saving my money to spend later combined with other people saving their money to spend later amplifies an economic downturn. Since you're operating on behalf of the greater good you feel fully justified in forcing me to spend when and how YOU want by breaking my window.


It gets down to a belief that government is more qualified—and has greater authority—to determine what is to be done with an individual's property, than that individual himself has over his own property. This is a primary defining distinction between a free society, in which government exists to serve the needs of the people; and an oppressive totalitarian state in which the people themselves are effectively slaves to their government.

[lomiller]

It gets down to a belief that government is more qualified—and has greater authority—to determine what is to be done with an individual's property, than that individual himself has over his own property. This is a primary defining distinction between a free society, in which government exists to serve the needs of the people; and an oppressive totalitarian state in which the people themselves are effectively slaves to their government.
The US Constitution specifically allows government to tax people and use the proceeds for the common good. Are you suggesting the US needs to abandon the constitution in order to change it from the slave society it's been for the last 200 years to a "free one" that bit could have if everyone did what you told them?

[Bob Blaylock]

The US Constitution specifically allows government to tax people and use the proceeds for the common good. Are you suggesting the US needs to abandon the constitution in order to change it from the slave society it's been for the last 200 years to a "free one" that bit could have if everyone did what you told them?

The Constitution also contains specific, narrow definitions of what this “common good” is, and what powers are legitimately delegated to the federal government. The Tenth Amendment forbids the federal government from expanding outside those narrowly-defined powers, and the Fifth Amendment explicitly prohibits the taking of private property for public use without just compensation to the one whose property is thus taken.

The vast majority of us who have been robbed to pay for the fraudulent “Cash for Clunkers”*scam will never receive any benefit therefrom, nor be in any way compensated for what was taken from us to pay for this scam.

[KoihimeNakamura]

The Constitution also contains specific, narrow definitions of what this “common good” is, and what powers are legitimately delegated to the federal government. The Tenth Amendment forbids the federal government from expanding outside those narrowly-defined powers, and the Fifth Amendment explicitly prohibits the taking of private property for public use without just compensation to the one whose property is thus taken.

The vast majority of us who have been robbed to pay for the fraudulent “Cash for Clunkers”*scam will never receive any benefit therefrom, nor be in any way compensated for what was taken from us to pay for this scam.

What is Begging the Question. (Also, I'm pretty sure a case can be made for indirect benefits and compensation, but I'm not going into that as proving it is a) murky and b) unreliable.)

[lomiller]

The Constitution also contains specific, narrow definitions of what this “common good”

It also contains very specific, narrow definitions for who interprets what's in the constitution, these definitions do not include blogs or random internet posters, they most certainly do not include you. So I ask you again why do you object to the US Constitution and system of government?