Bob Murphy writes this in his own comment thread:
"Believe it or not, you guys, Blackadder (and maybe Gene?) were actually backing me into a corner. Last night, I fired off something like, “So unless you think taking money from people and handing it to the unemployed is ‘good for the economy,’ you can see my analogy was sound.”
Well duh, Krugman et al. would say, “Of course we think that’s good for the economy–we call it unemployment benefits. Haven’t you been paying attention?”
But now I don’t need to concede anything, because Gene and Daniel Kuehn are assuring me that “nobody” ever held this position. No one has ever said that the extra economic activity caused by employing idle resources, could more than compensate for the initial disturbance that set it off, right?"
What I've argued (and to my knowledge, all Gene has argued) is that no one that I'm aware of has said that destruction from disasters is a net benefit for the economy. Under certain conditions it can provide some quirky gross benefits, but nobody makes the case that it's a net benefit. Any ambiguous language used by Krugman like "some economic good" (which I think clearly means "gross benefit" becasue of the use of the word "some" - implying other "economic bads") should be easily clarified by the accompanying analysis and by the readily observable fact that Krugman is not a warmonger or a reveler in the misery of others.
This is obviously very different from what Bob attributes to us here. Here Bob says that we think that taking money from someone else and handing it out would be a net benefit for the economy.
Is this better than a hurricane destroying wealth to convince someone to spend money on repairs? Of course it is. We have no wealth destruction effect, only an income transfer (let's assume the redistribution isn't occuring out of taxes on wealth). Since the broken window itself is an important part of the broken window fallacy, getting the broken window out of the picture and just moving around money obviously improves the situation.
But still, Bob is talking about taking money from one person and giving it to another. Could it stimulate GDP and employment? Yes, I'd agree it probably could in a situation like the one we're in now if it amounts to transfering money from people with relatively high liquidity preference to relatively low liquidity preference. Of course there is an opportunity cost associated with that transfer, but in the current underemployed environment the stimulative impact is expected to exceed the opportunity cost.
But notice how Bob sneakily slipped in "taking money"*. This isn't what Keynesians propose. Some liberal Keynesians have a chip on their shoulder about the rich and oppose things like extending the Bush tax cuts, but that doesn't come from their Keynesianism - it comes from their liberalism (or perhaps even darker corners of their psyche). The boilerplate Keynesian position is to increase spending and lower taxes during a downturn. So there is no proposal of taking money from anybody. The point is to create money or other safe, liquid assets (like, say, Treasury debt) for which there is an excess demand.
Bob goes on:
"(Be careful how you answer guys. If you concede that a simple wealth transfer from a rich saver to an unemployed guy who will spend the $$, could generate net benefits to the economy–as least in Krugman’s view–then you are dead in the water. All you need is a small enough disaster that goads such transfers from rich to idle in order to generate these gains that will compensate for the disaster’s direct destruction of wealth.)"
This is technically true, but I don't see how it's relevant. What we're dealing with here is an opportunity cost the size of the transfer and a benefit the size of the transfer plus some residual due to the fact that we're below full employment. Yes, if Bob can think up some sort of destructive force that causes very small amounts of damage but for some strange reason induces a very large amount of spending during a period below full employment I could agree that there may be some net benefits associated with it. But that doesn't seem to be what we're talking about at all. The spending (for which, let me reiterate, there is an opportunity cost that already weighs down on any gross benefits) that we talk about is usually repair spending, right? We need to fix the window. We need to fix the nuclear power plant. We need to rebuild Germany and Japan. These aren't situations where we have big spending because of small destruction. We have big spending precisely because we have big destruction.
And in any case, even if Bob can come up with a situation where the destruction plus the opportunity cost is lower than the spending plus any multiplier, why not just create new money that doesn't have a lot of the downsides and in addition to the multiplier effect of a transfer, also has an effect on the interest rate?
* - of course I don't really think he was being "sneaky". It may or may not have been intentional, but regardless of his intent it's a crucial phrasing.
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