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"The Broken Window Fallacy": Why Government Stimulus Spending Will Keep The Unemployment Rate High

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. In today's 3:06 un-spin, the broken-window-fallacy is addressed 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.

 

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Tue, 04/03/2012 - 17:34 | 2314654 DoChenRollingBearing
DoChenRollingBearing's picture

Other than PMs (and Pb and delivery systems), spare parts are all that's left...

"Bearings We Sell In Peru"

 

NO .gov help down there!

Tue, 04/03/2012 - 18:00 | 2314731 margaris
margaris's picture

I remember another fine example of "the window fallacy" seen in the movie the fifth element.

http://www.youtube.com/watch?v=krcNIWPkNzA

its the scene with Zorg, his fine robot army, and also the calamitous cherry at the end, lol...

Tue, 04/03/2012 - 18:09 | 2314754 Manthong
Manthong's picture

Great movie and scene.. Zorg's pet looks like Janet Napolitano.

But we need to update this tired window parable…

Time to go all Krugman on every big screen television in the country by slinging a ball bearing right through the center the displays.

                    THAT will get this economy moving.

 

Tue, 04/03/2012 - 18:12 | 2314766 johnu1978
johnu1978's picture

I've been unemployed for over three years now, I gave up looking for work over a year ago, I don't see a point in it anymore.

 

-John
Primitive Skills Classes - Wild Edible Tours
http://www.heartrootnatureconnection.com

Tue, 04/03/2012 - 20:23 | 2315091 Atomizer
Tue, 04/03/2012 - 20:25 | 2315092 flacon
flacon's picture

Cash For Clunkers in action. Men destroy a Volvo because the government made them do it:

 

Volvo Cash for Clunkers Engine Disabling

http://www.youtube.com/watch?v=waj2KrKYTZo

 

Tue, 04/03/2012 - 20:30 | 2315097 Thomas
Thomas's picture

International Nomenclature Committee has ruled on Bastiat's Broken Fallacy and has decided to give it the more contemporary name, "Krugman's Dumber than Dirt Fallacy".

Wed, 04/04/2012 - 02:04 | 2315533 AldousHuxley
AldousHuxley's picture

stimulus construction projects are nothing new in human history.

 

Olympics = non-profit multi-year construction projects every 4 years around the world.

 

Religion had cathedrals and church building projects in Europe that took 100+ years.

 

Egyptians had pyramid building projects to keep slaves working and not doing Occupy Nile Street protests due to lack of jobs.

 

Rich get richer by not spending their money....so governing bodies come up with schemes to have them spend on something that creates jobs and keep the restless laborers occupied instead of overthrowing the status power quo.

 

Wed, 04/04/2012 - 04:46 | 2315621 tabasco71
tabasco71's picture

You forgot 'war'.

Wed, 04/04/2012 - 03:45 | 2315600 Element
Element's picture

It's an enduring reproach and curious enigma that Pelosi's trenchant mental-illness and cognitive degeneracy into routine delusional blundering is constantly being misinterpreted and misread as evidence of a prodigious and indispensable capacity to lead the lesser-lights within the US Congress.

Tue, 04/03/2012 - 23:18 | 2315360 A Nanny Moose
A Nanny Moose's picture

Beat me to it. The farmer looking guy in the hat sounded just like Zorg.

Tue, 04/03/2012 - 19:20 | 2314962 donsluck
donsluck's picture

It's faulty logic to equate public works projects with destructive behavior. With public works (not war spending) society has chosen to join to together to produce something most people need or want. It is not practical for highways to be built through individual payments, and for-profit highways are eventually more expensive (due to the profit) and favor the rich.

The trails through our greatest National Parks are a testimonial to what good beautiful works are possible if we join together to build them.

The never ending wars we currently persue are what destroy capital, as well as lives and civilizations.

Tue, 04/03/2012 - 19:22 | 2314967 Freewheelin Franklin
Freewheelin Franklin's picture

Who has chosen?

Tue, 04/03/2012 - 19:26 | 2314975 skipjack
skipjack's picture

While wars may destroy capital, so do unnecessary and pointless "bridges to nowhere".

 

All "public works" are is a way to funnel Bennie Bux to unions, which will then support Obummer and all other Dimmocruds in the next election.

 

The stupid, it burns...

Tue, 04/03/2012 - 19:31 | 2314986 spankthebernank
spankthebernank's picture

Swing and a miss for you on the point of the video Donny boy!

Tue, 04/03/2012 - 19:47 | 2315011 nmewn
nmewn's picture

"The trails through our greatest National Parks are a testimonial to what good beautiful works are possible if we join together to build them."

I've always found it fascinating that "progressives" seek to improve on nature by paving it over and adding ADA ramps to it.

Prolly just me though.

Tue, 04/03/2012 - 21:53 | 2315220 Bobbyrib
Bobbyrib's picture

As opposed to replacing it with condos and highways. Both parties in this country have allowed it to become overdeveloped.

Tue, 04/03/2012 - 22:22 | 2315270 nmewn
nmewn's picture

I was talking about National Parks regarding preservation of nature. But yes, your point is well taken with me.

I have a good friend (a liberal...not a "progressive") from high school who lives in a little house on the beach surrounded by condos. I'm talkin twelve stories. A little beach house, passed down through the family. Developers have hooked up with the city and tried all sorts of nefarious devices over the years to root him out...all they see is green...all he see's is sand ;-)

Tue, 04/03/2012 - 19:58 | 2315036 piceridu
piceridu's picture

@donsluck:

 

"With public works (not war spending) society has chosen to join to together to produce something most people need or want." Your belief that "society has chosen is flawed my friend. Society didn't chose shit. Cronyism and corruption chose. We need the Department of Transportation, Caltrans or any other black hole bureaucracy like we need the DMV...reasonable people can chose for themselves and the "greater good usually means what's "greater good" for usurious banks, government crony employees, lobbyist...please be careful how you use "society"...looks and sounds a lot like soci-alism.
Tue, 04/03/2012 - 19:58 | 2315037 blunderdog
blunderdog's picture

Although you're correct in theory, in practice it hasn't often worked that way.

The only effective use of government spending is to accomplish works which will not be performed any other way.  There are myriad examples of places where this has been done, but the glassy-eyed zealots will never acknowledge that things like the phone system and the Internet COULD have any value.

"No, no, all the government can do is move money around."

Perhaps there's a clear reason for such willful blindness.  Perhaps it's just bad education.  In any case, once you encounter a bald assertion which contradicts what you *know* to be true, you may as well quit the conversation.  It's no longer a discussion--it's become a war of near-religious passion.

Wed, 04/04/2012 - 02:31 | 2315550 xtop23
xtop23's picture

It always amazes me how the pro big government supporters hold up the internet as a paragon of why central planning works.

The net is great and has been a boon to the world in more ways than one.

I would only respond by saying this;

 There is no way of knowing whether or not something infinitely better might not have come into existence with that capital were it allocated by the market instead of a bean counter on Pennsylvania Ave. and that there are MANY more examples of misallocation by central planning than examples of money well spent.

Wed, 04/04/2012 - 13:10 | 2316899 blunderdog
blunderdog's picture

Yeah, but you'd think if it were really true that government can't ever do anything or accomplish positive infrastructure construction, the incredibly obvious examples (Internet for one) would have been created by someone else in some other setting.

There's nothing "amazing" about the fact that there are examples of government sponsored and/or required work that have been very successful.

What's "amazing" is that there are people whose ideology prevents them from acknowledging that fact.

(Not to dwell, but you're making really unwarranted assumptions about what I believe.  I'm not a "pro big government supporter" at all.  I'm just not crazy enough to deny obvious historical events.)

Tue, 04/03/2012 - 20:00 | 2315045 oddjob
oddjob's picture

You don't build a park, you protect it from corporate greed, Co$t on that, Zero.

Tue, 04/03/2012 - 20:09 | 2315060 Maos Dog
Maos Dog's picture

National parks... NATIONAL PARKS!!!!!! Don't get me started..........

Here's a recent story about how your money is spent at national parks:

At carlsbad caverns, there is a long winding trail down to the bottom of the cave, which is a great beautiful walk. Truly a wonder of the world. The way back up is through an elevator.

The elevator is run by 4 PARK RANGERS!!!!!

One directs people into the elecator, one stands around guarding, one is in the elevator who's job it is to press the UP button this is ALL he does all day, and antother park ranger at the top.

4 salaries, with full benefits and pensions, to RUN A FUCKING ELEVATOR

Needless to say this kind of ruined my trip there.  

 

Tue, 04/03/2012 - 21:04 | 2315158 geekgrrl
geekgrrl's picture

Compared to the millions of people needlessly employed in "intelligence" and "security" in this country, you want to pick on the park rangers?

My experience has been the opposite of yours. I've been to a decent number of National Parks and they always seem sparsely staffed to me. I've seen case after case after case where mouth breathing epsilon parents with their seven kids decide that even through the sign says "don't climb on the tree (or cacti, or mosses, or whatever)," either they are illiterate (certainly a possibility) or just don't care what damage their little terrors do to some truly incredible one-of-a-kind places.

Just my opinion, but when I look at places where taxpayer money is really being pissed away, hands down it is the banks / National Security State, and they're going to bleed us dry. Or at least try.

Tue, 04/03/2012 - 22:12 | 2315252 kekekekekekeke
kekekekekekeke's picture

fucking seriously.

Tue, 04/03/2012 - 23:45 | 2315401 StychoKiller
StychoKiller's picture

Nothing sez you BOTH can't be right! :>D

Wed, 04/04/2012 - 00:27 | 2315459 dark pools of soros
dark pools of soros's picture

When one can't see the real causes of their blights, any perceived irritations will be cause for complain

Tue, 04/03/2012 - 21:55 | 2315224 Bobbyrib
Bobbyrib's picture

What's the matter? You have something against pork? /sarcasm.

Tue, 04/03/2012 - 20:30 | 2315103 Stuck on Zero
Stuck on Zero's picture

I agree about there being a logic to public works ... if the money is actually spent on public works.  To be properly spent the project 1) needs to be of long term benefit in terms of necessary infrastructure, 2) it also must be put out to bid with no strings other than job performance attached, and 3) there must be a revenue source to pay back the funds.  Public works usually come at a much cheaper price than simply doling out welfare.  Welfare destroys the very fabric of a society.  Unfortunately our current government thinks public works is a honeypot for political payoffs.

 

Wed, 04/04/2012 - 02:10 | 2315536 Carp Flounderson
Carp Flounderson's picture

For articles like this on zerohedge, i typically look for comments with the most negative votes to find the ones which make the most sense.  Congrats.

Wed, 04/04/2012 - 02:20 | 2315545 xtop23
xtop23's picture

If you want to see a perfect example of the broken window fallacy you have only to go to YouTube and watch Peter Schiff's testimony before a congressional panel.

The female PhD that is sitting next to him, goes into a lengthy diatribe of this video's contents almost verbatim.

I only remember her testimony because Peter proceeds to tear her a new one almost immediately.

Tue, 04/03/2012 - 17:34 | 2314658 Kreditanstalt
Kreditanstalt's picture

Failed to mention that little more than the cost of a window is lost; granted, nothing is created but spending is merely moved in such a way as to favor the glazier over others.

Tue, 04/03/2012 - 17:46 | 2314688 Seer
Seer's picture

And, it's highly likely that it's the glazier's lobby that's behind it all... (even the hooligan [if not a direct govt "informant"].

Tue, 04/03/2012 - 17:49 | 2314697 Fluffybunny
Fluffybunny's picture

"Thrift leads to lower investment; wage cuts reduce employment; even higher productivity can be a bad thing. And the broken windows fallacy ceases to be a fallacy: something that forces firms to replace capital, even if that something seemingly makes them poorer, can stimulate spending and raise employment. Indeed, in the absence of effective policy, that’s how recovery eventually happens"

- Paul Krugman (September 3rd 2011)

Tue, 04/03/2012 - 18:14 | 2314773 r00t61
r00t61's picture

Then Dr. PK should walk the walk and demolish his own house.  That will create aggregate demand. 

And instead of writing a useless column, he should go around demolishing other things.  Houses, cars, parks, department stores, pizza parlors, and traffic cameras. 

If he would do any of these things, I would at least know that he believed in what he wrote.

That he doesn't just proves that he's another GOSPLAN shill, a useful idiot trotted out by the Party to give an air of legitimacy to their absurd propositions.

Tue, 04/03/2012 - 20:02 | 2315049 nmewn
nmewn's picture

"Then Dr. PK should walk the walk and demolish his own house.  That will create aggregate demand." 

lol...which one...the one in St.Croix or the one in Manhattan?

Tue, 04/03/2012 - 23:36 | 2315386 TMT
TMT's picture

PK should demolish his own house only while he is home. Two birds, one stone.

Tue, 04/03/2012 - 18:43 | 2314854 scatterbrains
scatterbrains's picture

It's even worse tha this as now the tax payers have to pay for ever expanding prisons to house these hoodies after they're caught. Although at the federal level they've adjusted for this effect by just refusing to prosecute crooks.

Tue, 04/03/2012 - 20:29 | 2315098 island
island's picture

@Kreditanstalt -- Precisely.

In the broken window scenario - the money could go to a glazier, or a roll of duct tape, or some boards to cover over the window, etc. 

And, in fact, a certain amount of destruction - whether quick or slow (think depreciating or decaying assets) - is part of what generates demand.  

If one ONLY has destruction, that is a different story, because there is nothing produced, so no money circulates (nobody has money to spend).

 

 

 

Tue, 04/03/2012 - 17:34 | 2314662 penexpers
penexpers's picture

Worst Italian accent ever...

Tue, 04/03/2012 - 17:45 | 2314684 mr. mirbach
mr. mirbach's picture

As if the dad burn farmer's accent was a dead-on protrayal....

Tue, 04/03/2012 - 17:46 | 2314690 penexpers
penexpers's picture

You are correct. Equally as shitty.

Tue, 04/03/2012 - 17:38 | 2314670 MacedonianGlory
MacedonianGlory's picture

Creative destruction

Tue, 04/03/2012 - 17:38 | 2314672 Alcoholic Nativ...
Alcoholic Native American's picture

"more and more dependent on the state for corporate profit margins"

lol, will somebody please think of the corporate profit margins.  

Tue, 04/03/2012 - 17:42 | 2314679 Hopeless for Change
Hopeless for Change's picture

Yes, progressive liberals, Keynes was only right to a point.  And we have that point in sight...

Tue, 04/03/2012 - 17:50 | 2314686 bob_dabolina
bob_dabolina's picture

BULLSHIT

I have Nancy Pelosi right here saying Unemployment benefits are the BEST way to create jobs. The vid. is less than 1 minute.

http://www.youtube.com/watch?v=WUAG3Fqz56s

"It would be impossible to think of a situation where we would have a country that would say we're not going to have unemployment benefits"

This cunt must not realize that this country started without any benefits other than having opportunity. How many people came to Ellis Island and were thinking about UE benefits? How many from the Mayflower? NONE. This country was at it's pinnacle prior to UEB's.

Tue, 04/03/2012 - 17:55 | 2314710 Seer
Seer's picture

And here all along I thought that the world's economic system could be saved if we all just bought iCrap!

Tue, 04/03/2012 - 17:57 | 2314722 Alcoholic Nativ...
Alcoholic Native American's picture

Free loading Christoff Columbus was sucking off the crown tit his whole life.  

Just give me a few more months!  I swear I'll find a continent!

Tue, 04/03/2012 - 18:12 | 2314768 bob_dabolina
bob_dabolina's picture

Yea, because Columbus came over on the Mayflower right?

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