💾 Archived View for library.inu.red › file › kevin-carson-broken-window-fallacy.gmi captured on 2023-01-29 at 11:43:57. Gemini links have been rewritten to link to archived content
➡️ Next capture (2024-07-09)
-=-=-=-=-=-=-
Title: Broken Window Fallacy Author: Kevin Carson Date: November 2005 Language: en Topics: globalization Source: Retrieved on 4th September 2021 from https://mutualist.blogspot.com/2005/11/broken-window-fallacy.html][mutualist.blogspot.com]] and [[https://mutualist.blogspot.com/2005/11/follow-up-broken-window-fallacy.html
Bk Marcus has a good post on Bastiat’s broken window fallacy at
lowercase liberty.
What-is-seen-and-what-is-unseen is a powerful way to introduce someone
to the concept of opportunity costs, but in the case of the broken
baker’s window in Bastiat’s original essay (and in the cases of World
War II, the World Trade Center, typhoon-ravaged coastal cities, and now
New Orleans), what should be seen is the whole and functional window as
part of the wealth in the world and the destroyed window as part of the
destruction of wealth.
Before the little vandal, the baker had a window and some savings. After
the vandal, the baker has a new window and less savings. That means less
wealth. What exactly is unseen?
What is seen, unfortunately, is the increase in nominal GDP caused by
replacement of the broken glass.
Bastiat’s evisceration of the broken window fallacy dovetails nicely
with some of the material at the True Cost Economics site. See
especially “Scrap the GDP.”
The ASI and Globalization Institute blogs regularly feature enthusiastic
posts about how “globalization” and “more trade” (neither one the same
as free trade, by the way) lead to “economic growth” and skyrocketing
GDP. But nobody in those circles stops to consider how much of the
nominal GDP measures genuinely productive activity, and how much is the
cost of replacing broken windows. How much of the GDP reflects activity
that takes place only because it’s subsidized, and the non-privileged
bear the cost? How much of the GDP is made up of such externalities--the
replacement of “broken windows” like cleaning up pollution, the
inefficiencies of centralization and bureaucracy, or building more
highways and airports to transport goods long-distance that would be
more efficiently produced near the point of sale? How much of GDP
reflects the monetization of activity formerly carried out within the
household and barter economies, as evicted peasants work in sweatshops
to earn the wages to buy the food they used to grow themselves?
Addenda. Some good stuff in the comment thread. colorless green ideas
provides a link to a better index of economic output.
And Bill at Reasons to be Impossible says
the old eastern bloc regimes used to use the semi-Marxian Gross Material
Product (which would have roughly equated with added labour) — when they
joined the western bloc they switched over to using GDP which basically
doubled their effective appearance.
Well, surprise, surprise, surprise!
---
My original post drew some comments by Alex Singleton at Samizdata and
the Globalization Institute Blog (hat tip to freeman for the link).
Kevin Carson complains that it does not deduct “broken window” spending.
Trashing a window and then replacing isn’t his idea of real economic
growth. Yet I think GDP is a good measure precisely because it keeps
things simple. Government statistics are difficult enough to objectively
collect as it is: if statisticians have to make value judgments about
how much a natural habitat or a certain type of bird flying in the sky
is worth, the statistic will soon lose any meaning.
If it keeps things deceptively simple, or imposes a level of simplicity
greater than the subject matter warrants, it’s a worthless statistic.
Don’t libertarians spend an awful lot of time combating ideas that,
despite their appealing simplicity, are just plain wrong? An activist
government can increase GDP by hiring the unemployed to dig holes and
fill them in again. If the statistic only measures how much money is
being spent, without regard to broken windows and crutches for legs
broken by state capitalism, then it never had any meaning to begin with.
GDP isn’t a perfect measure, but I think it’s a mistake to say it
overestimates “real growth”. If anything, it underestimates it. In Off
the Books, W. Michael Cox and Richard Alm point out that the statistic
misses many of the improvements in living standards.
Seems to me that this argument doesn’t really do much to rehabilitate
the GDP. Cox and Alin didn’t directly address any of GDP’s shortcomings
in the opposite direction, which I mentioned in the earlier post. They
didn’t address the extent to which GDP includes broken window spending.
They didn’t address the extent to which increased GDP registers the
monetization of activity that previously took place in the household and
barter economies; in that case, the GDP may actually reflected a reduced
possibility for independent subsistence outside a corporatized economy.
As I’ve pointed out earlier, forcibly driving subsistence farmers off
their land through modern-day enclosures, and forcing them into the wage
market, may make for a big increase in GDP--but not a big improvement in
the dispossessed peasants’ quality of life. And arguably, much of the
exploding GDPs in third world countries reflects just such a
development, in which peasants are forced against their will to work in
sweatshops for the wages to meet needs they previously provided for
themselves. Cox and Alin, finally, didn’t address state-mandated
increases in the cost and complexity involved in maintaining the same
standard of living: Ivan Illich’s “radical monopoly” by increasingly
professionalized services and increasingly complex goods, the
discontinuation of cheaper and simpler models of goods and of spare
parts for them by cartelized industry, and other ways in which the floor
is being raised under the minimum level of consumption for an acceptable
standard of living (as Paul Goodman put it, by crowding out cheaper
alternatives for subsistence, the state capitalism is making comfortable
poverty less and less feasible).
So even if Cox and Alin are right about the positive qualitative factors
ignored by GDP, we’re left trying to make an off-the-cuff comparison
between two unmeasurable deviations, in opposite directions, and to form
an impressionistic judgment as to which is more significant.
Rather than Bastiat’s broken window, by the way, a better analogy might
be broken legs. How much of the nominal increase in the GDP of third
world countries is the value of crutches, in the form of wages for
labor, given to those whose legs were broken through forcible robbery of
direct access to the means of subsistence?