Saturday, June 12, 2010

Coordination Problem on the verge of a Broken Window Fallacy?

"Perhaps I shouldn’t read too much into this event, but I think it is very comforting to meet total strangers outside the academic world who know something about AE [Austrian economics]. Perhaps the current economic malaise has a good impact on the diffusion of Austrian ideas. I don’t know if anyone has evidence of this, but I would not be surprised if the current economic situation was driving people more into Austrian economics than ever before."

I'm sure they would explain that they're talking about a gross positive effect rather than a net positive effect, and that there is still no net positive effect - which would be fine, because that's exactly the point I make whenever I say "well... that's not really what Bastiat was saying." Then once that processes someone can go explain it to Russ Roberts.


  1. It's a net positive effect if more people are drawn into researching Austrian economics than before, wouldn't you say?

  2. As far as I know, Austrians recognize the difference between "gross" and "net". Austrians, for example, recognize that the window maker has made a profit (selling two windows, instead of one), but this comes as a loss to the shop owner. When using the broken window fallacy I'm 99.9% sure that Austrians mean to imply a net loss of wealth.

  3. Well right - which is why I say that if I challenged Frederic on it he'd give me a gross/net explanation. But - at least in some fora - it can be really tough to sell that distinction. I don't think it's because they don't understand the concept of gross and net (or stock and flow, which is also relevant to Bastiat) - I think it's because they have a doctrinal adherence to what they think the broken window fallacy is and they won't think critically about what Bastiat actually said.

    You should look at Russ Roberts's recent post on it. The inability to grasp it while simultaneously proclaiming it is astounding. The caveat is that a lot of the commenters on Cafe Hayek don't have training in economics and are more politically oriented libertarians. I still think they understand cnocepts like gross and net, but they don't necessarily "think like an economist".


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