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Visualizing The Broken Window Fallacy

Tyler Durden's picture




 

In our busy days, it is all too easy to fall into the trap of hearing (and believing) the latest headline and its associated spin. For some reason, three minute videos can quickly and easily remove these 'spins' without the need for a PhD. And so we decided to dust off today's 3:06 un-spin clip, addressing the broken-window-fallacy  as the seen versus unseen impact of the idiocy of a broken-window's (or war, or destroying homes, or...) positive impact on an economy is explained in cartoon style. The sad fact is that this fallacy remains at the core of mainstream policy-making and as the video notes, the government's 'creation' of jobs via public works programs (or any number of stimulus-driven enterprises) it does so at the expense of the tax-payer via higher taxes or inflation and that 'spending' which would have otherwise gone to new fridges or iPads is removed and this does nothing to significantly improve aggregate demand (should there be such an amorphous thing) and in fact (as we recently noted here and here) leaves us more and more dependent on the state for corporate profit margins leaving any organic growth a dim and distant memory.

 

Broken Window Fallacy
Source: BestAccountingDegrees.net

 

Broken Windows Are Good For Business... right?

 

 

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Thu, 05/08/2014 - 21:34 | 4742013 TwoShortPlanks
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The Rabbit Hole

Another shameless [OFF TOPIC-ISH] blog by TwoShortPlanks

http://twoshortplanksunplugged.blogspot.com.au/2014/05/the-rabbit-hole.html

Thu, 05/08/2014 - 21:51 | 4742058 SafelyGraze
SafelyGraze's picture

every time the window breaks and gets re-installed or whatever, I collect sales tax and income tax and gasoline tax and I get to regulate the installation and so on and so on

so it's no fallacy

I need broken windows in order to survive

hugs,
the squidfascia

 

Thu, 05/08/2014 - 22:17 | 4742107 nmewn
nmewn's picture

I thought you were talking about a fascist state there for a sec ;-)

Thu, 05/08/2014 - 22:17 | 4742114 Thomas
Thomas's picture

I think for complete numbnuts like Krugman, you simply point out that the hours spent bringing the window back to its original state could have been used to provide an altogether new good or service. Even Krugman could understand that...or maybe not.

Thu, 05/08/2014 - 22:29 | 4742146 ZerOhead
ZerOhead's picture

Not.

Thu, 05/08/2014 - 22:42 | 4742174 666
666's picture

So Congress and Obummer are good for the economy by destroying everything they get their hands on, right?

Fri, 05/09/2014 - 06:18 | 4742721 eclectic syncretist
eclectic syncretist's picture

The continued failure of debt-fueled expansion is really starting to bum Krugman out.  If he really believes what he says one way to cheer that sad motherfucker up would be to have his windows broken out.  Could somebody up there in Princeton make Paul happy again?

http://www.celebrityhousepictures.com/paul-krugman.php

Fri, 05/09/2014 - 14:31 | 4744291 goBackToSleep
goBackToSleep's picture

at 250k a month, can't he aford a driveway. Those are probably impact glass better bring a pitching machine.

Thu, 05/08/2014 - 22:38 | 4742164 NoDebt
NoDebt's picture

If y'all could stop breaking my windows, I'd really appreciate it.  Those sonsofbitches are kinda expensive to replace.

On a lighter note.... "rebuilding our nation's infrastructure" is the same as fixing a broken window.  If you're just fixing what shoulda been fixed 10 years ago you're basically just catching up on deferred maintenance.  Bridges in need of repair still carry 100% of the traffic they were designed for.... right up until they collapse.  ZERO gain to the economy.  In fact, NEGATIVE gain, since it costs a lot more to fix something after it breaks than it does to do proper maintenance on it all along.

I know. Nobody gives a fuck.

Fri, 05/09/2014 - 01:14 | 4742479 A Nanny Moose
A Nanny Moose's picture

Fuhgeddabout it. While many ZH'ers get it, this is entirely to complex a concept to grasp for the average State Edewkayted mouth breathing mobility-chair mall troller.

It ain't their fault, so it is up to those of us who understand, to elighten. foreveryting else there is the kharmic equalizer, and frequently ignored, meat grinder of history. Don't say we didn't fucking tell you....goddammit.

Thu, 05/08/2014 - 23:28 | 4742275 williambanzai7
williambanzai7's picture

Thu, 05/08/2014 - 21:37 | 4742024 DoChenRollingBearing
DoChenRollingBearing's picture

What about broken banksters?

Thu, 05/08/2014 - 21:42 | 4742030 Major Major Major
Major Major Major's picture

I think that is the "flying window fantasy"

Thu, 05/08/2014 - 21:40 | 4742031 Ban KKiller
Ban KKiller's picture

They could be "fixed" like we do to our pets. Perhaps done in public. 

Oh, just a dream...

Thu, 05/08/2014 - 22:32 | 4742154 cynicalskeptic
cynicalskeptic's picture

How about fixing broken BRIDGES?  broken ROADS?

I'm paying a shitload of taxes and seeing a collapsing infrastructure while getting less and less in the way of 'services' - unless you consider gov extracting payments in the form of enforcing a crapload of regulations enacted solely to collect excessive fines.    Every goddamn traffic regulation now has a ridiculously expensive fine associated with its violation.   You have to get 'permits' for doing ANYTHING.    A neighbor fixed a basement after a sewage back-up and the local assessor wants to raise their taxes for 'finishing' their basement (not simply restoring what was).  Replace a door or window they want a permit (and fee).   Don't shovel your sidewalk you get fined.  Hell, around here YOU are responsible for REPAIRING the sidewalk (doesn't the TOWN own those?).

I ended up filling the potholes on the street outside my driveway because they wer killing my car's suspension.  A town owned tree fell and took out my fence (thankfully, that's all).   I ended up cutting the tree up and will foot the bill for my fence out of pocket despite requesting that the town deal with the tree FIVE YEARS ago.  If I had taken the tree down before it fell I would have been fined.   Coud have been worse - a friend had heir arm broken by a limb falling from a town tree - one their parents ahd asked be taken down a decade earlier.

Thu, 05/08/2014 - 21:47 | 4742045 Ignatius
Ignatius's picture

When he looks out of his Manhattan pad and sees a flash Krugman will be sportin' wood, I'd imagine.

Thu, 05/08/2014 - 21:48 | 4742048 A Lunatic
A Lunatic's picture

The moral of the story is glass-makers are too fucking stupid to save money even though windows are very expensive..........

Thu, 05/08/2014 - 21:57 | 4742069 Newfie
Newfie's picture

A broken window protest!

Let us stimulate the economy.  Break a window to save the world.

Occupy blew a goat. Arab springs blew goats.

Just break a window to save the world.

Fri, 05/09/2014 - 06:21 | 4742725 eclectic syncretist
eclectic syncretist's picture

How about an alien invasion false flag moment?  That should make it possible to pay off our debts by taking on ever increasing amounts of debt, right?

Thu, 05/08/2014 - 22:00 | 4742078 Dr. Engali
Dr. Engali's picture

Hey kid I need a new car. Come smash mine and create some jobs in the automotive sector. Smash it up real good so the insurance company totals it.

Fri, 05/09/2014 - 01:15 | 4742485 A Nanny Moose
A Nanny Moose's picture

Bingo. If destruction were the path to prosperity, then why not perpetual warfare? Fucking fucktard Kruggybear.

Thu, 05/08/2014 - 22:01 | 4742079 Atomizer
Atomizer's picture

The result of QE Federal Reserve exponential function gone wild.

Albert Bartlett:  http://www.youtube.com/watch?v=F-QA2rkpBSY

 

Math will have a tremendous blowback over Central Planning and over the consumption of hockey stick projections in corporate boardroom presentations. We must form their feeble minds mentality has lost billions in taxpayer subsidies & lack in EM growth. Just look at the U-6 unemployment scale.

 

Thu, 05/08/2014 - 22:04 | 4742088 I Write Code
I Write Code's picture

Tell it to Nancy Pelosi.

And Paul Krugperson, he has a Nobel Prize, I think they must have stuck it up his ass.

Thu, 05/08/2014 - 22:06 | 4742091 Spungo
Spungo's picture

Krugman getting hit by a car is good for the car repair industry.

Fri, 05/09/2014 - 00:26 | 4742391 Ariadne
Ariadne's picture

Good for the car repair industry, excellent for morale.

Thu, 05/08/2014 - 22:06 | 4742093 MollyHacker
MollyHacker's picture

There's no fallacy that the broken "Windows" was good for Microsoft business

Fri, 05/09/2014 - 03:59 | 4742640 ParkAveFlasher
ParkAveFlasher's picture

Planned obsolescence vs. the Everlasting Gobstopper. 

Thu, 05/08/2014 - 22:14 | 4742106 ableman28
ableman28's picture

The best explanation for the situation we now find ourselves in is this. Real wage growth, by any measure, ground to a halt beginning in with Reagan's election, along with the organized effort to suppress union membership, and finishing with the export of many higher paying manufacturing jobs overseas.  Credit in all its forms, beginning with the Master Card and Visa explosion around 1977 replaced real wage growth.  Because individuals can leverage income in the same way any business can the ability to improve ones standard of living through the use of debt/leverage replaced wage growth.  But, as for any business, any individual, and any society where debt is the main driver of consumption, there is a lmit on the amount of leverage that can be taken on.  

We are now at a point where there is no real wage growth, almost no room to take on more debt, and things are simply grinding down.

 

 

Thu, 05/08/2014 - 22:15 | 4742109 cynicalskeptic
cynicalskeptic's picture

Better if gov spends money CREATING things instead of destroying them (or simply paying people for doing NOTHING productive).

A lot of people scream that FDR wasted mony spending it on the WPA and CCC and such BUT those programs EMPLOYED people that created lasting durable things.  Most of our national and state parks have trails, bridges, shelters and buildings built by these programs.  Post offices, schools and the murals that decorated them, highways, sidewalks and more were built.  The peopel working in these programs would otherwise have been unemployed, scrambling to make money any way possible.

Better than warfare.   better than paying people to DO NOTHING.

Another said that FDR used government to put people to work so they could earn moneyto buy things made by other Americans - putting MORE people back to work.  Today government spends FAR more money - created out of thin air or borrowed from foreigners - to pay people NOT to work but allowing them to buy cheap things made by foreigners - putting more foreigners to work.  Under FDR we as a nation benefitted from all the facilities created - the money spent by government was spent PRODUCING somethign tangible.  Today NOTHING tangible or lasting is produced by those receiving payments from government.

A valid case can be made for government spending for the unemployed WHEN those unemployed are put to work producing goods and services that benefit society.  But paying people to do nothing is inflationary - the money supply is expanded but nothign is produced in exchange for those payments.   It's all about spending funds and PRODUCING goods and services - NOT about simply SPENDING and CONSUMING goods and services.

You need to get something of value back in exchange for spending money - or government is simply expanding the money supply.

Thu, 05/08/2014 - 22:30 | 4742150 Bazza McKenzie
Bazza McKenzie's picture

You're a good example of the broken window fallacists.  You ignore where the money came from that Roosevelt spent and the other jobs and construction lost because of his diversion of that money.

You also ignore his perpetuation of high levels of unemployment by continually intervening in the economy, just like Obama (Obamacare being an outstanding job destruction mechanism).

Fri, 05/09/2014 - 10:02 | 4743138 Ghostdog
Ghostdog's picture

True but if given the choice of putting money into infrastructure jobs or giving it to the fed to deliver more ivory backscratchers to cronys, I would choose the former as in the end if nothing works (which we know its not going to) at least you have a bridge to show for it. I say they should have let it crumble in 08 and by now we would have been seeing Goldman's 4% to 7% non-fake GDP growth

Thu, 05/08/2014 - 22:33 | 4742156 25or6to4
25or6to4's picture

Ah yes the good old WPA. Let's put people in government labor camps for the problem government, (through the private Federal Reserve), created in the first place. Did any of said programs pull us out of the depression or perhaps was it the destruction of our main economic competitors, Japan and Germany, that had a factor in our recovery post WW2?

Thu, 05/08/2014 - 22:57 | 4742201 ILLILLILLI
ILLILLILLI's picture

They could be Federal Employment Maintenance Agency camps...

Fri, 05/09/2014 - 10:13 | 4743167 Ghostdog
Ghostdog's picture

Federal Assignee Replacement Training also know as, F.A.R.T

Thu, 05/08/2014 - 22:22 | 4742116 Cabreado
Cabreado's picture

"this fallacy remains at the core of mainstream policy-making"

How sad to read such nonsense.

You're kidding, right?

 

 

 

Thu, 05/08/2014 - 22:39 | 4742170 Bear
Bear's picture

Do you think breaking the FED counts?

Fri, 05/09/2014 - 16:33 | 4744757 heavy.metal
heavy.metal's picture

Empty gold coffers says the FED is already broke

Thu, 05/08/2014 - 22:19 | 4742117 A Lunatic
A Lunatic's picture

The new paradigm will involve waging wars in only the richest of neighborhoods, towns, cities, and countries. That way it will be fair; nobody will have anything nice or the money to rebuild it.......

Thu, 05/08/2014 - 22:30 | 4742149 Jack Burton
Jack Burton's picture

I love to hear the scumbag Larry Kudlow of CNBC shame declare that this ot that hurricane or flood is good for stocks because of all the spending for recovery. He, Mr. Kudlow ,has made some rather famous and shameful statements about bullish disasters. Declaring the event as a good thing while rescuers are still pulling bodies of men, women and children from the rubble. Now, Kudlow is typical of the greed at any cost type. He would climb over a pile of bodies to grab a nickle out of the hands of a five year old survivor if he thought he could get away with it. I suspect I know what drives Kudlows greed, but can't post it for obvious reasons.

Anyways, I have never believed that war or natural disaster is good for business, though it may benefit a select group while a larger group suffers the consequences. It is like the idea that cancer is good for the economy, which it is not, but the medical providers do profit. To understand why this is fucked up thinking, you need only consider the basic laws of physics and some of the laws of thermodynamics. Entropy and all that. But bottom line is that you can't get something for nothing, physics proves this, and entropy drives the whole system. Disaster and destruction can not be net positive because of the laws of physics. And greed mongers like Kudlow know that many will suffer a net loss in war of hurricane, while a small isolated section can profit, but only from the loss of the many. Like Germany at the end of world war two. Unemployment was zero, because the nation was a waste land and there was no end of work to do. But people had little food, little shelter and little pay. All had work, all got paid, but the level was starvation. In Kudlows world, this is good, the few in germany who may have had a business that employed recovery and construction work were making a profit, and thus war had been good to them, but almost all of society slaved away in the cold and dark and were hungry. It amazes me that a certain group can be so stupid as to believe war and disaster produces good jobs and good profits for any but a tiny few, the net result is less wealth and more hard work for little return. CNBC is the home of a certain type of slime, a stinking cess pool of intellectual whores who justify evil and loss because they think it might boost someones stock share price in the short term. Physics needs to be studied by economists, because those laws govern everything, even economics. That economists don't know jack shit about the importance of physics is why economists always get it wrong! You can not break those laws and they will not be broken, you can't produce a net positive from a war or a disaster that destroys people and wealth. Just like cancer can never, ever, be a net positive for the economy as a whole, though a medical provider might see a profit in his column, many others will post a loss greater than that positive, or in other words, entropy will not be cheated of it's cut! Take that Kudlow, you scum of the earth cunt.

Thu, 05/08/2014 - 23:12 | 4742251 Sticky Wicket
Sticky Wicket's picture

Very well said!

Thu, 05/08/2014 - 23:37 | 4742288 Dr. Engali
Dr. Engali's picture

" I suspect I know what drives Kudlows greed, but can't post it for obvious reasons."

I never in my life thought I would have to check a person's profile to find out their ethnicity. It goes against everything I believe. Sadly it appears Francis Sawyer was right.

Fri, 05/09/2014 - 07:33 | 4742792 22winmag
22winmag's picture

Kudlow is just another talking head who happens to be be able to appear a little more legitimate than the other talking heads.

 

Heard him on the radio (before I could reach the dial and turn him off) just the other day saying the economy was on the up and up.

Fri, 05/09/2014 - 08:30 | 4742865 liz pendens
liz pendens's picture

You had me at cunt.

Thu, 05/08/2014 - 22:38 | 4742168 Bear
Bear's picture

Hard to believe that this is not instantly intuitive ... but again those with an agenda will twist whatever happens to their position

Thu, 05/08/2014 - 23:41 | 4742303 honestann
honestann's picture

Destroy the destroyers.

That's no fallacy.

Fri, 05/09/2014 - 05:00 | 4742664 kurt
kurt's picture

We could compost their bodies and grow fruit trees!

Thu, 05/08/2014 - 23:49 | 4742327 Spungo
Spungo's picture

If only some aliens would nuke half of America. We could have full employment doing things like pulling dead bodies out of rubble and inventing new ways of dealing with radioactive contamination.

Fri, 05/09/2014 - 00:45 | 4742426 breakyoself
breakyoself's picture

Where are the fraudsters that purposely caused car accidents? They can make serious money with so many people driving talking or texting on their smartphone. That is job creation.

Fri, 05/09/2014 - 00:49 | 4742433 ebworthen
ebworthen's picture

They don't care.

One lie is as good as the next.

Now go buy a flat screen T.V. and some bling eatery shit.

Fri, 05/09/2014 - 02:12 | 4742560 VWAndy
VWAndy's picture

Build a better mouse trap. Now thats a real economic system. The best part is it is the natural way of things. It just happens and at the right time too.

Fri, 05/09/2014 - 02:17 | 4742566 capitallosses
capitallosses's picture

I have assembled a box of rocks pulled from my left ear, and tomorrow I will set out to break lots of windows and prove the theory.

Fri, 05/09/2014 - 06:19 | 4742722 Flying Tiger Comics
Flying Tiger Comics's picture

Broken Window principle = status quo machine = slavery / serfdom

Fri, 05/09/2014 - 07:32 | 4742790 Offthebeach
Offthebeach's picture

Here in the Peoples Commonwealth overpriced government palaces are built to break, leak, mold up. We have lilly white no fires ever, fire departmens that need a new palace because the never any fire fire department next town over have the full Sub Zero kitchen/ gym/ lounge about movie theater.

Fri, 05/09/2014 - 07:38 | 4742800 Took Red Pill
Took Red Pill's picture

Agree with the video except for the "savings" part. We all know that's not how loans work.

Fri, 05/09/2014 - 08:05 | 4742822 Smuckers
Smuckers's picture

Lets go break Krugmans windows every month.

 

Fri, 05/09/2014 - 08:37 | 4742881 gaoptimize
gaoptimize's picture

Does anyone remmember the scene in "The 5th Element" where Zorg tries to justify his destructive existence by pushing his glass of the table?

Fri, 05/09/2014 - 08:42 | 4742893 gaoptimize
gaoptimize's picture

I've spent some time thinking about it, and the insurance compay doesn't really loose money in the long run.  Who will insure something that never breaks?

Fri, 05/09/2014 - 10:37 | 4743263 Smiley
Smiley's picture

Great Alien Overseers; please relocate me to Planet Leavemethefuckalone.  I promise not to annoy anybody and keep my little area clean and tidy.  This planet is becoming intolerable.  It is full of self-important shitheads who think they are the great consciousness of humanity.

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