Tuesday, August 16, 2011

Bastiat, Yglesias, and Krugman

It's been a while since I've posted on the Broken Window Fallacy, but people foaming at the mouth over Paul Krugman statements usually provides an opportunity, and his recent statement on Fareed Zakaria is no exception. Matt Yglesias has an interesting spin on addressing the fallacious interpretation of the very reasonable point made by Bastiat here.

Nothing convinces me you don't understand what Bastiat wrote more thoroughly than accusing Paul Krugman of having committed a Broken Window Fallacy.

Geez I'm having too many "why do I even bother with this?" moments this week - and right on the verge of going to grad school. If this keeps up I'm going to close down F&OST and hole up in the library. Ultimately, I suppose I bother because people out there actually think these things and pretending they don't isn't going to help anything.


  1. Sorry Daniel, but I don't understand Yglesias' point.

    I read that twice, but I only got more confused.

    How does anything change, when you move from a limited money supply to a policy variable money supply? It won't change the supply of real resources in the economy.

    I get that you really mean it with the, "Can people really be this dumb?" stance in your post, but in this case, yes, I am that dumb. I just don't get it.

  2. His point seems to me to be simply that the money supply isn't fixed anymore. I don't think that's a very strong point because even when it was fixed, you could increase the velocity of money by doing more with it.

    When I said that he put an "interesting spin" on refuting the common fallacies you hear about Bastiat, I had in mind the fact that usually I and others point out that Bastiat was careful to keep stocks and flows distinct whereas modern people who like to act like they're consistent with Bastiat often do not. Yglesias, rather than challenging people on the stocks and flows point, challenges people on the crowding out point more directly.

    He doesn't need to cite fiat money to do that, and in fact he's wrong insofar as the point still holds on gold standard. I just found the fact that he argued from that angle interesting. This specific point isn't of all that much consequence (to me at least) - I'm just amazed that Bastiat still gets used the way he does. You'd think DeLong's posting on Bastiat's views on public works would have put that to rest. Then again, I'm not sure those sorts of people ever manage to get past DeLong's titles.

  3. DeLong's quote of Bastiat had Bastiat explicitly promoting public works to relieve unemployment...but also explicitly stating, "Such things are at a cost, it is true..."

    Bastiat promoted those things on grounds of morality and realpolitik i.e. not wanting to see people without work for long periods. He still felt there was an economic cost to those public works.

    PS: Yes, I understand that public works can't increase the stock of resources, but merely increase the flow of resources from one place to another, instead of keeping them idle. But I feel you disregard the fact that some of your opponents do acknowledge this fact; they seem to have the idea that sitting on money and hence slowing its flow is not a problem, because it is merely money spent in the future instead of the present.

  4. http://www.youtube.com/watch?v=gG3AKoL0vEs&feature=player_embedded

  5. Nice restatement of the fallacy without any mention of Krugman or the modern political scene: http://www.youtube.com/watch?v=Hrg1CArkuNc

  6. From Bastiat's _The Disbanding of Troops_:

    "But what you do not see is this. You do not see that to dismiss a hundred thousand soldiers is not to do away with a million of money, but to return it to the tax-payers. You do not see that to throw a hundred thousand workers on the market, is to throw into it, at the same moment, the hundred millions of money needed to pay for their labour: that, consequently, the same act which increases the supply of hands, increases also the demand; from which it follows, that your fear of a reduction of wages is unfounded. You do not see that, before the disbanding as well as after it, there are in the country a hundred millions of money corresponding with the hundred thousand men. That the whole difference consists in this: before the disbanding, the country gave the hundred millions to the hundred thousand men for doing nothing; and that after it, it pays them the same sum for working. You do not see, in short, that when a tax-payer gives his money either to a soldier in exchange for nothing, or to a worker in exchange for something, all the ultimate consequences of the circulation of this money are the same in the two cases; only, in the second case the tax-payer receives something, in the former he receives nothing. The result is--a dead loss to the nation.

    The sophism which I am here combating will not stand the test of progression, which is the touchstone of principles. If, when every compensation is made, and all interests satisfied, there is a _national profit_ in increasing the army, why not enrol under its banners the entire male population of the country?"

  7. Prateek,

    One thing a liberal will always find is another reason to spend tax money on something; they have literally no limiting principle when it comes to that.


    Bastiat on stock vs. flows:

    ___When we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."

    What will you say, Monsieur Industriel -- what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?____

    He doesn't really make a distinction.

  8. 'Geez I'm having too many "why do I even bother with this?" moments this week'

    I feel you. Recently I've found myself halfway through comments on Mises, Sumner's blog, Youtube (the video of Keynes - yes, I know, I'll stay away) and Econlog before I've just thought 'what's the point? Seriously, these people are beyond redemption and you aren't going to change anything.'

    Judge a blog by its comments section and only post in the ones where you get positive engagement.

  9. @Daniel,
    Yglesias doesn't seem to make an effective challenge on ANY point. I don't know what makes you think he has a valid argument about "Bernanke can just print money and break windows and it'd work!" but I believe you've succumbed to the same fallacy that he has.

  10. I think its kinda astounding that you're getting a doctorate in "Economics" but they aren't teaching you any economics.

    The idea that fiat currency makes the broken window fallacy no longer relevant is absurd on the face of it... the inflation is merely another way of breaking windows. Maybe call it cracking windows.

    By devaluing the money in everyone's hands, you can rob the poor blind, and as Keynes himself put it (quoting Lenin) not one in 100 will recognize it.

    Keynes, who you quote at the top of the page, repudiated the so called "Economics" that Krugman is peddling, and if you can't be bothered to make an honest response to the Broken Window fallacy and the criticism Krugman rightfully deserves, why would you deserve a PhD?

    Remember, krugman is the one who advocate the creation of the housing bubble, while Austrians pointed out (Even Ron Paul in video in 2001 predicting the housing bubble) that it would be bad for the economy. Then 2008 happened proving the austrians right.

    Then krugman advocated, like all neo-keynsians, destroying windows across the country with "Stimulus" spending.... and what was the result of that? The economy sank like a rock.

    Every time you guys get proven wrong by reality, you refuse to change your mind and make up new facts.

    At some point, really, it should be embarrassing.

    On the upside, however, I find that this kind of mismanagement by "economists" like krugman and bernanke is really predictable and thus profitable for the likes of me... Hell, even the ignorant could make money simply betting on the opposite of whatever Obama predicts.

    Economics is a science, which means it has predictive value. It is never too late for you to walk away from the nonsense you seem to be learning and take up an education in it.

  11. Daniel have you ever considered just ignoring the austrians like most people do? They seem like a waste of time and patience. I get headaches from face palming myself so many times every time i read Bob Murhpy's blog (especially when he tries to nit pick krugman on the tiniest technicality and ends up missing the whole point)

    Ignorance is bliss


All anonymous comments will be deleted. Consistent pseudonyms are fine.