12 Sep 2012

Krugman At Least Clarifies His Position on the Broken Window

Krugman 71 Comments

Lots of people have been asking me to weigh in on Krugman’s discussion of the JPMorgan post on the iPhone5. (Fun fact: Michael Feroli, the author of the JPMorgan piece, was in my cohort at NYU. I’ve emailed him to see what he thinks of Krugman’s interpretation.) I’m seeing if it makes sense for me to write up my reaction for an outside source…

For now, look at this from Krugman:

In other words, if you believe that the iPhone really might give the economy a big boost, you have — whether you realize it or not — bought into a version of the “broken windows” theory, in which destroying some capital can actually be a good thing under depression conditions.

So right there, Krugman is being quite clear that it is hypothetically possible that it “can actually be a good thing” to destroy wealth. I bring this up, because Daniel Kuehn (and perhaps Karl Smith, don’t remember) were arguing within the last two years or so that Austro-libertarians were putting words into Krugman’s mouth. Kuehn et al. were arguing, “No no no, Krugman isn’t saying it would actually be good if there were a minor natural disaster that wrecked some buildings, he’s just saying the gross harm wouldn’t be as bad if it occurred during a period of involuntary unemployment.” (Obviously I’m paraphrasing; that’s not an exact quote from Kuehn.)

I’m pretty swamped with day job stuff right now, but if people want to put in links in the comments to our past discussions on this, that would be awesome. I know there was one post that I did that walked through something like 4 different possible views on what someone might think in the event of employment/wealth destruction, and whether to call it “good” for the economy.

71 Responses to “Krugman At Least Clarifies His Position on the Broken Window”

  1. Daniel Hewitt says:

    How is an iPhone a capital good?

    • Major_Freedom says:

      “Output” schmoutput.

  2. Ken B says:

    Krugman will slip out with a clarification about ‘destroying’. My leaky tap has some value, and if I replace it I am ‘destroying’ the old capital. That’s not the the broken windows fallacy is about but Krugman is very, very good at wriggling through escape hatches.

  3. Blackadder says:

    In other words, if you believe that the iPhone really might give the economy a big boost, you have — whether you realize it or not — bought into a version of the “broken windows” theory

    Um, no. The broken windows fallacy is about destroying things to induce demand. With the iPhone it’s the other way around.

    • Ken B says:

      Well put Blackadder, that is exactly right.

    • Daniel Kuehn says:

      Ya I think this is an important point. I mean, you can see what he’s getting at but it’s not a real clean parallel.

      • Major_Freedom says:

        In other words it’s a dirty one? Or still clean, just not mirror shill? Excuse me, I meant mirror shiny.

        • Daniel Kuehn says:

          “Messy” is probably more appropriate than “dirty”. Dirty implies malfeasance when it’s applied to things people say. I just think it’s not as obvious a parallel as we’d ideally like, but it is a decent enough parallel that you can see what he’s trying to get across. He’s trying to get across that stocks and flows are different and bad news for stocks can often be good news for flows.

  4. Daniel Kuehn says:

    I need to reread what’s been said at various points in time.

    I think that destroying wealth can fairly clearly be good for GDP, employment, and any other flow variable. I think Bastiat knew that. Ropke said it explicitly with respect to war. It’s a fairly obvious point (of course there’s no guarantee it will be good for GDP).

    If that’s the sense in which one means “good thing” I think that’s fine. I wouldn’t go overboard on the Krugman exegesis or the Summers exegesis if that seems to be all they mean.

    To say whether Krugman ever said more than that I’d have to review tape.

    I’d still caution against excessive Krugman exegesis on this line too.

    What “good thing” is he referring to?

    The GDP boost.

    Still sounds OK to me, but you know what a shill for Krugman I am.

    • Ken B says:

      One note of caution DK doesn’t mention but could. Krugman did say ‘bought into’. This has a connotation and usually suggests you shouldn’t have.

      It’s not 100% clear that Krugman is really endorsing the BW fallacy here.

    • Major_Freedom says:

      The government destroyed everyone’s accumulated wealth, taxed everyone 100% of their income, printed $5 trillion dollars, and then paid everyone in the economy a collective $20 trillion to build a giant pyramid of poo made from Krugman’s septic tank.

      Using GDP, employment, and output as metrics to measure well-being, you know, using means to ends as ends in themselves(!), this is a “good” stimulus that “worked.”

      • Dan (DD5) says:

        To be fair, DK has said above that those things can be good for all those “flow variables”. Not to you or me or anyone else. It’s almost as if he anticipates that he may have to try to acquit himself by a mere technicality from any “false” allegations at some point in the future.

        • Daniel Kuehn says:

          No need to be nearly so conspiratorial. I’m a pretty open book.

          GDP is not welfare. That’s not why we care about it. Why do we care about it? Because in today’s market economy most people trade using income from employment and as long as labor is an important input in the production process employment is highly contingent on GDP.

          I’ve stated this repeatedly. There’s not technicality to speak of. It’s pretty straightforward and if it looks like “getting off on a technicality” you’re reading me wrong because this is what I’ve always said.

    • Bob Murphy says:

      I don’t think this works, Daniel. He is quite clearly saying “a good thing.” He’s not saying, “a good thing net of the loss of your old iPhone.”

      The only way out of this, is for him to say, “I wasn’t endorsing the JPMorgan analysis. I wasn’t saying that boosting GDP growth was the goal, etc. I was just saying that anybody who believes this JPMorgan analysis, is thus committed to so thinking.”

      But in the past, Daniel, we’ve seen that Krugman has said things talking about destruction being good but possibly only with respect to promoting GDP growth; that’s why you could (and did) plausibly argue that Krugman wasn’t saying it was “good for the economy” or just plain old “good.”

      Yet here, he is explicitly saying that that’s what the issue boils down to. I don’t think he is making the subtle distinction that you raised back the last time we debated this.

      Last thing: I think Krugman here is remaining agnostic on whether the iPhone release will actually accomplish it, but there is absolutely no doubt in my mind that he thinks it is possible that something (say, an alien invasion that didn’t kill people, but only destroyed a few buildings) would actually be “good for the economy” on net.

      • Daniel Kuehn says:

        What is the “good thing”. See earlier in the exact same sentence for what the “good thing” is. The “good thing” is giving the economy a “big boost”.

        Well that’s rather vague. What does he mean by giving the economy a “big boost”?

        We can just click through to the JP Morgan post for clarification. It’s a boost to GDP specifically.

        So if we just work with what Krugman has actually said, the “good thing” is a GDP boost.

        I would prefer not to pile assumptions and reading between the lines on top of that by assuming he’s saying anything more than that. I don’t see any grounds whatsoever to impute a silly assumption like “GDP is the only thing that matters”.

        To impute that you have to assume that “good thing” means “net good thing”. In other words, to impute that you have to assume your own conclusions Bob. And more than that you have to assume assertions that he doesn’t write.

        “Good thing” can mean many things, including a “a gross good” or “on net a good thing”. Every data point we can squeeze out of this post only ever seems to give us “a gross good”. You have to start assuming things to get any more than that.

        • Silas Barta says:

          But GDP boosts aren’t inherently good. They’re only good if and to the extent that they reflect Pareto-optimal, willingly-chosen exchanges between people that they recognize as being their best option with that use of the money or good.

          And generally, that correlation holds. But if GDP is “boosted” only because, say, you ban people from cooking their own food, or your jack with taxes and laws to make it individually optimal for a business to dig holes and re-fill them, that is *not* good.

          If you equate “boost GDP” with “good” when you’re deliberately goosing the metric … you’re gonna have a bad time. (Though if you’re Daniel_Kuehn you might ignore it in bliss.)

          • Daniel Kuehn says:

            “But GDP boosts aren’t inherently good.”


            I’m always afraid to read past the first sentence when I agree with you. I have this instinct to quit while we’re ahead.

          • Daniel Kuehn says:

            OK, I agree with the whole thing. I’m not sure why you’re treating this like a counter-argument.

            I would add one wrinkle. Demand is constrained both by willingness AND ABILITY to pay. There can be purchasing power issues. GDP is good also because employment is increasing in GDP and most people acquire purchasing power in the labor market.

            Goosing the metric obviously isn’t a good idea. So you do welfare-improving things to increase purchasing power.

            • Major_Freedom says:

              Goosing the metric obviously isn’t a good idea. So you do welfare-improving things to increase purchasing power.

              Who is the “you” here? The state, right?

              What is “welfare improving” from the state’s perspective is “goosing” from the perspective of those who would have spent their money or purchasing power in the way that actually benefits them.

            • Ken B says:

              It’s a counter argument because as several of us have noted, the choice to junk the old phone is voluntary, and this is not the case with a broken window, where someone breaks it despite your wishes.

            • Silas Barta says:

              Then why do you advocate/rejoice when GDP numbers go up, even when you know that, in that context, the preconditions don’t apply (Pareto-optimality, etc)?

        • Bob Murphy says:

          Daniel Kuehn wrote:

          I would prefer not to pile assumptions and reading between the lines on top of that by assuming he’s saying anything more than that. I don’t see any grounds whatsoever to impute a silly assumption like “GDP is the only thing that matters”.
          To impute that you have to assume that “good thing” means “net good thing”. In other words, to impute that you have to assume your own conclusions Bob. And more than that you have to assume assertions that he doesn’t write.

          No way, absolutely not, I put my foot down, I’m drawing a line in the sand, this aggression will not stand. Daniel, YOU are the one putting in assumptions here.

          Krugman is talking about this “being a good thing.” So then I say, “Whoa, not it’s not a good thing.” Then you say, “Hey, don’t assume he had a clause in there saying, ‘and it’s not overridden by some other bad factor that swamps it, so the whole thing is bad on net.'”


          If I say, “Eating poison is a good thing,” and then people freak out, I don’t get to say, “Stop assuming things! What I didn’t say, but was thinking, is that, ‘Except that it will kill you. I was just talking about the thrill of doing something forbidden. Sure, once you factor in the downside, it’s a bad thing on net.'”

          Anyone who talked like the above, should have his windows broken and be forced to eat poison.

          • Joseph Fetz says:

            I love the Big Lebowski reference. Only you.


          • Daniel Kuehn says:

            Eating poison is a good example. Let’s run with that.

            Let’s say Krugman was writing a post on chemotherapy. Let’s say he talked about how it got rid of his cancer. The poison killed the cancer and he’s starting to feel better.

            And let’s say he concluded that blog post with all that context with a pithy sentence like “so ingesting poison is a good thing”.

            What do we do?

            Completely ignore the context and say he is saying that (1.) there are no negative side effects to chemotherapy, and (2.) ingesting all poison in any context is always a net good?

            Do we do that?

            No – we understand the context of the rest of the post and all his links and we recognize exactly what he’s saying for what it is: a qualified statement of good things that can result from ingesting poison.

            The context is clearly the benefit for the flow.

            I am absolutely not the one adding things here. I’m taking what’s given in the post at face value.

            • Major_Freedom says:

              Where is this “context” in Krugman’s post that is the analogy for the benefits of chemo?

              • Daniel Kuehn says:

                Oh I don’t know – the part where he talks about the impact of the iPhone on GDP maybe.

              • Major_Freedom says:

                Those alleged benefits are from the NEW iPhones, not the old ones being destroyed.

                I am talking about the context that relates to “destroying capital is a good thing”.

              • Daniel Kuehn says:

                Yes – see my comments on Blackadder’s comment about this not being the greatest analogy. Obsolescence isn’t quite capital destruction, but you could think about obsolescence and a new iPhone as being a high rate of consumer utility depreciation. In that case, a lower depreciation rate (i.e. – lower obsolescence) could have negative consequences for GDP because you don’t have iPhones continually rolling out.

                It’s a sound point and while it’s not exactly the Bastiat example you can see what he’s getting at.

              • Major_Freedom says:

                Obsolescence isn’t at all capital destruction.

                If you don’t lose sight of the standard by which we understand these concepts (individual action – purposeful behavior – individual utility), then you can see that “obsolescence” (me throwing away an old good because I value the alternative more highly) is literally the exact opposite of “capital destruction” (someone engaging in activity that destroys more highly valued goods and replaces them with lower valued goods).

                When it comes to individual human action, obsolescence and capital destruction are not connected at all.

                Saying that one “isn’t quite” the other presumes that they are similar in some respects, as if it is possible that replacing less valued goods with more highly valued goods can be replicated by replacing more highly valued goods with less valued goods.

                You say “you can see what he’s getting at”, but I think those are your thoughts. You are assuming he is thinking what you’re thinking, when according to what he said, he is equivocating someone purposefully replacing a lower valued good with a more highly valued good, with someone who’s window was smashed by a hoodlum, which is a story specifically designed to make clear that replacing more highly valued goods with less valued goods doesn’t make the person better off, regardless of the “activity” that results.

                Krugman is the one who brought up the broken window fallacy, remember. This fallacy cannot be referred to in cases of voluntary replacement of lower valued goods with more highly valued goods, which is the case with the iPhone.

                Krugman is clearly trying to (unsuccessfuly) integrate a concept that has been thrown at his own ideas many times, into his own economic worldview so that he can use it as a weapon against others and say “See? You ALSO think “good things” can come from the kind of destruction I am advocating for the sake of GDP! We may differ a little bit, but I believe if individual consumers are voluntarily replacing lower valued goods with more highly valued goods, then why can’t the state replicate this by force when it is engaging in “stimulus”?”

            • Major_Freedom says:

              And please note, “I just know he’s thinking it” doesn’t count.

            • Silas Barta says:

              If you try to eat chemotherapy, even as a cancer patient, you’re gonna have a bad time.

              Probably in the form of being escorted away by security.

        • Daniel Hewitt says:

          “Good thing” can mean many things, including a “a gross good” or “on net a good thing”.


          • Major_Freedom says:


            “LOL” can mean many things, including “laugh out loud” and “linguistics of laserbrains.”

            • Daniel Hewitt says:

              Don’t read between the lines. That could have been a “gross LOL”, not a “net LOL”, which means I was agreeing with DK.

              • Ken B says:

                Is that a good thing, a bad thing, or a gross thing?

              • Major_Freedom says:

                It’s interesting how these things always come to light only in the presence of criticism.

          • Robert Fellner says:

            The next time I’m tempted to engage DK I need to just re-read this thread. Which, ironically, comes a mere days after his shock and outrage to my assertion that he is an incredibly unclear thinker/writer.

    • Silas Barta says:

      I think that destroying wealth can fairly clearly be good for GDP, employment, and any other flow variable.

      And the part you never seem to “get” is that, in precisely those situations, GDP and unemployment *no longer reflect economic goodness or human welfare* the way we expect them to, and thus are, to that extent, not desirable things to optimize.

      Intelligent person: “Hey, GDP is generally correlated with human welfare. I want to improve human welfare. Oh — look over there, where a natural disaster hit: the correlation has broken down. So in that area, I’m not going to regard GDP as indicative of improved welfare”

      Daniel_Kuehn: “Hey, GDP is generally correlated with human welfare. I want to improve welfare (though not my mechanism of recognizing such). Oh — look over there, where a natural disaster hit. That’s going to goose GDP pretty well. AWESOME!”

      • Bob Murphy says:

        Silas, I actually don’t think Daniel is saying that though. I think it’s more like this:

        Mike Feroli: I think the iPhone 5 will boost GDP growth. I am talking about this because GDP growth generally goes hand in hand with human welfare.

        Krugman: See, Mike Feroli agrees with me that GDP growth is a good thing.

        Silas: Krugman is an idiot!

        Daniel Kuehn: No, Krugman never said GDP growth was a good thing. Stop reading in between the lines.

  5. Major_Freedom says:

    DeKrugman’s argument about natural disasters as it pertains to the broken window fallacy can be summed up as follows:

    People can grow the economy.

    There are various reasons why people would grow the economy.

    Natural disasters is one reason why people build stuff.

    Building stuff grows the economy all else equal, therefore natural disasters, even though they are a “bad” influence and should not be welcomed, nevertheless may compel economic growth given that natural disasters occur.


    All they’re saying is that economic growth can occur for reasons other than people wanting to increase the supply of goods in the absolute sense.

    The reason they emphasize this point is because they need to find a chink in the classical laissez-faire economics armor so as to present government stimulus intervention (which is like a natural disaster in the way it destroys wealth), as a possible method by which an otherwise non-government intervention economy can grow (by introducing government stimulus intervention).

    See, if they accepted that government stimulus intervention does not grow economies period, then there would be no reason to emphasize the “natural disasters MAY be a cause for economic growth” point.


    Now enter Krugman. He says people throwing away their iPhones, to buy new iPhones, what he calls “destroying capital” can grow the economy…in “depression conditions.” What he is trying to show is that because people voluntarily destroy goods in the market process, that he wants people to believe that the government can replicate this by purposefully destroying capital in the political process, to boost “employment” and “output”. (What kind? It’s always “roads, bridges and schools”, but they’ll be fine if the politicians choose “SWAT teams, drones and bombs”. Really, If Keynesians had their way, there would be roads and bridges and schools literally everywhere. Our society would look like a game of SimCity played by a drunken idiot).

    The only reason DeKrugman brings up natural disasters as possibly leading to increased output, is that they need as many off the wall analogies and esoteric analogies as they can, to pierce the armor of free market economics so that they can release the state. That’s the only reason. They yammer about unemployment and output, but if they really cared about these things, they would have long ago learned that the government is responsible for credit cycle depressions, and that the free market is the best way for employment and output to increase…even in the greatest depths of a depression. In fact, especially in a depression are free market processes most needed.

  6. kavram says:

    I’m still trying to figure this out. I don’t want to accuse Krugman of intellectual dishonesty but I seriously don’t see any other way he can apply the broken window “theory” to entrepreneurial innovation.

    In Bastiat’s story the merchant hires the glazier to replace something *he didn’t want broken in the first place.* He would’ve preferred the original window remained intact. With the iPhone, people are voluntarily trading in their old phones for new ones. They prefer the new iPhone regardless of whether their old phone was still working. No “broken iPhones” were necessary, it’s a false analogy.

    Also his idea that “destroying some capital can actually be a good thing” is technically true but I doubt he had Schumpeter on his mind when he wrote that

  7. Major_Freedom says:

    Ben “CTRL+P” Bernanke should hire these guys.

    • kavram says:

      They made the mistake of dropping the cash into middle-class neighborhoods. Bernanke would not approve. Any self-respecting central banker knows that first dibs go to the Wall St. investment firms.

      Overall I think Bernanke would give them a “Thanks for the interview, we’ll get back to you…”

  8. Paul says:

    I’m confused by this. Are Apple demanding that current iPhone users break their devices before they can purchase an iPhone5? Are they not allowed to sell them on secondary markets?

  9. Rob says:

    This is probably missing the point but what has the new iphone got to with the broken window fallacy ? Anyone who chooses to buy the new phone has made the decision that they think they will be better off with it than without it. And they likely won’t destroy their old phones but just sell them or give them away or keep them as a backup

    It seems unlikely however that the new iphone will give the economy a big boost. Even if everyone bought one then surely it would be instead of buying other stuff unless these phones are so great that people use up some of their savings to buy one.

    • joshua says:

      I’ve been thinking the same thing. In the Broken Window Fallacy, the shopkeeper originally didn’t think upgrading his window was the best use of his money, but when someone breaks it that involuntarily shifts his priorities and causes him to choose repairing the window as the best of his new options, even though it’s less good than his original option. The unseen cost is the opportunity cost of what better thing he would have done otherwise.

      When someone replaces an iPhone, they are voluntarily choosing to replace their capital; it would be like a shopkeeper voluntarily breaking his window because he thinks upgrading it is the best use of his money. There is no unseen cost. So how does that have anything to do with BWF?

  10. Bob Murphy says:

    I need you guys to clarify something for me: My Blackberry is so old that I wouldn’t wish it on my worst enemy. So when I finally cough up the money to upgrade, I’m assuming it really will go in the trash.

    However, am I right to assume that people who upgrade to the iPhone 5 will sell their old phones or give them to somebody else? I.e. can people get a new service with somebody’s used phone? I just am not into all these newfangled things like you crazy kids these days, so I don’t have firsthand knowledge of how this stuff works.

    • Silas Barta says:

      If you buy a second-hand smartphone rather than buying a brand-new one, you’re committing an act of economic terrorism, and deserve shame for hurting the economy. You’re putting people out of jobs. People who will, because of poverty, become suicide bombers. I hope you’re happy, Mr Stingy.

    • Matt Miller says:

      Right, this was my first objection. It’s possible people with VERY old phones may just junk their old ones, but it’s pretty unlikely someone with an Iphone 4 is simply going to toss it into the trash in order to purchase an Iphone 5. There are plenty of websites that specialize in this exact service, you go on their website, tell them the model of the phone you want to get rid of, and they give you the price they’re willing to pay for it and send you an empty box (with postage) to ship it in, to make it easy. There already are specialty markets existing to solve this exact problem (and they just happened, without being created by the federal government, amazing I know).

      Also, there could always be people who are buying their first smartphone, or purchasing an additional smartphone and not replacing an old one. Just some thoughts.

    • Joseph Fetz says:

      I know that you have a Blackberry, but as far as the old iPhones, Apple does have a buyback/recycling program. They give you more for certain things, other things you get nothing. Usually, the payment is in the form of gift certificates and discounts on future Apple products.


    • Ken B says:

      ” My Blackberry is so old that I wouldn’t wish it on my worst enemy.”

      HA! Finally a testable prediction from an Austrian. My mailing address is ….

      • Joseph Fetz says:

        Don’t give yourself too much credit. You’re just a major pain in the ass, at most.

        • Ken B says:

          You’re probably be right Joe, but I did a google earth of Bob’s back yard. He has 4 dart boards. On one is a picture of FDR. On the next a picture of Lincoln. The third has a picture of Paul Krugman, and the fourth a picture of a straight razor.


          • Joseph Fetz says:

            That’s the problem with google earth, it’s too blurry to really see the definition of shapes. That wasn’t a straight razor that you saw, that was a wet noodle. I macaroni, I believe.

  11. Jeremy R. Hammond says:

    Three days after the terrorist attacks of September 11, 2001, Paul Krugman wrote that “Ghastly as it may seem to say this, the terror attack—like the original day of infamy, which brought an end to the Great Depression—could even do some economic good.” He argued, “If people rush out to buy bottled water and canned goods, that will actually boost the economy”, and “rebuilding will generate at least some increase in business spending.”

    Excerpted from my book Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis

    Source: Paul Krugman, “After The Horror,” New York Times, September 14, 2001, http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html.

  12. Ken B says:

    I’m not so sure that Krugman is endorsing Broken Windows here. I think he is make an a fortiori argument in favor of spending more on highways and infra-structure. “Look”, says PK, “there’s buzz about how the iPhone will be good for the economy. I don’t know if the numbers add up, but let’s give them a pass. If you look at the logic it’s like the Broken Window. So if the iphone is really gonna be good for the economy, because it employs idle resources, how much better would be building bridges which also would use idle resources for productive purposes.”

    I think he is wrong about the iphone being a version of BW, but if you grant him that anlogy ad arguendo you can see the structure of his argument. “If you think the iPhone is good then you should think my stimulus plan even better.”

    • Bob Murphy says:

      Yes Ken B. that’s what Krugman thinks he is doing. But as Blackadder, you (?), and many others have pointed out, Krugman is wrong for thinking it’s “like the Broken Window” for the rather important reason that there’s no involuntary destruction here. It’s like looking at consensual sex and saying “so if that’s OK, what’s wrong with rape?”

      • Daniel Kuehn says:

        Oh the comparison isn’t THAT BAD (and you can add me to the list of people on this thread who have said it’s not the greatest comparison).

        Bastiat’s fine. The way people misuse Bastiat is to forget that bad news for stocks can be good news for flows. That was really what Bastiat was getting at after all. He agrees that bad news for stocks can be good news for flows and he wants people to just remember that it’s bad news for stocks!

        Many people misuse Bastiat by jumping on anyone that points out that bad news for stocks can be good news for flows.

        This is not capital destruction, but it’s making the same point – reduction in the value of a stock can be part of the same process that produces new flow.

        So I don’t think it’s quite as bad as consensual sex and rape!

        • Major_Freedom says:

          What is all this stuff about stocks and flows?

          Bastiat makes it clear that FLOWS are adversely affected because of broken windows. He writes that if the hoodlum didn’t break the window, then the store owner would have purchased something else.

          The broken window fallacy is, among other things, an argument about mistaking a positive flow as being a net positive flow if we include the counter-factual flow of what the store owner would have done with his money.

          The statement “bad news for stocks can be good news for flows” is nonsensical. If something is bad for stocks, and it benefits a flow, then you cannot forget that this means the flow that went to the destruction (what you say is “good news for flow”) couldn’t have gone to the flow consisting of net improvements (in the counter-factual).

          Those who say bad news for stocks can be good news for flows are misusing Bastiat’s flow oriented lesson.


          This statement “This is not capital destruction, but it’s making the same point – reduction in the value of a stock can be part of the same process that produces new flow” is incredibly vague and misleading. “Part of the same process” can mean all kinds of things.

          Going to the hospital and paying for one’s healthcare “is part of the same process” as one getting shot. Going to the restaurant and paying for food, instead of buying a shirt for example, is “part of the same process” as wanting a more highly valued good over a less valued good.

          It is unjustified to say that because in both cases “new flows” are coming into existence, than we can put getting shot and wanting food in the same category of “that which leads to new flows.”

          It’s tarnishing one by the other.

          The reason why Murphy is using the rape analogy is because he wants to make it clear that we cannot lump together all the various reasons for why new flows come into existence as if they are interchangeable.

          New NET flows, as opposed to new flows that replace destroyed capital and thus consist of ruling out the creation of new flows elsewhere, and thus ruling out new NET flows in general, is the distinction that Bastiat’s parable is communicating.

          If someone destroyed my iPhone, and I then went out and purchased another one, then a misguided understanding of Bastiat would lead to the claim that employment and output flows would increase. But they won’t, for Bastiat’s lesson is that because I directed a flow to replacing the iPhone, I could not direct a flow to what I otherwise would have done voluntarily that would have resulted in a new NET flow, i.e. me having my iPhone AND whatever else I would have purchased.

          Krugman’s analogy is terrible because the broken window entails someone destroying my iPhone without my consent, whereas he is using it to say that me throwing away my iPhone voluntarily is “a version of the broken window”.

          The problem with Krugman’s argument is that he cannot help but look at the economy as a mechanistic “system.” He sees something physical getting physically destroyed, he doesn’t connect this back to INDIVIDUAL HUMAN UTILITY, and then sloppily equates voluntary physical destruction with involuntary physical destruction.

          Something is getting destroyed in the physical sense, without realizing that “destruction” vitally depends on human valuations, and then says people are purposefully breaking their own windows the way Bastiat talked about.

          The rape analogy cuts through and shows the vital importance of human values, consent, voluntary versus involuntary destruction, and so on.

      • Ken B says:

        Yes me Bob, several times actually. I made the same point as Blackadder but he worded it better.

        But if my summary is right about what he thinks he’s doing then you cannot really pluck PK’s comments about BW out and construe them as an endorsement. Because of the if I bolded. You can slam him for missing the key point of the anology (mis-analogy rather) — as I think your rape comment is meant to imply. But I don’t think you can slam him for what you did at first.

        • Major_Freedom says:

          Who is making that “if” argument though?

          Krugman is interpreting the “buzz” surrounding the iPhone as effectively saying:

          “Instead, the immediate gains would come from the way the new phone would get people to junk their old phones and replace them.”

          This “destroying old iPhones to make way for new iPhones” caveat was not stated in either the JP Morgan report or the WaPo article.

          Krugman seems to have added that argument in. It is his OWN interpretation of the JP Morgan report and the WaPo article.

          In other words, I think he is setting up a sort of straw man that is being used as a means by which he can push his own governmental version of creative destruction agenda of “if you think the iPhone will boost GDP, then logically you have to accept my Keynesian policies”.

          Murphy is right to slam Krugman for what he said at first.

        • Major_Freedom says:

          In other words, how does Krugman know that the JP Morgan report, and the WaPo article writer weren’t thinking that the iPhone 5 would boost GDP by way of reducing “cash hoarding”? How does he know that they were thinking that GDP would be raised by virtue of destroying old iPhones to make way for new ones?

          If I said that something may add to GDP, I am not necessarily saying that the something entails stock concept destruction. I could be thinking that something may convince people to part with their cash balances that they have been hoarding for a period of time. This can add to GDP too.

  13. Ken B says:

    Now that you’ve amped it up with a rape analogy … 🙂

    Let’s have a semi-truce. It seems to me you get most upset at my remarks which acerbically dis religious faith. I think you’re applying a double standard, and that my comments on religion are no more acid than yours on several topics, and think religion deserves a special deference. I disagree but it does seem to be a very emotional topic for you. So how about I reign in a bit the acerbity on the religous threads, and you reign in the choler of your reponses? Might make the blog less entertaining for the spectators but easier for us.

    (I exempt comments about Gene Callahan of course!)

    • Joseph Fetz says:

      Well, Gene is a special case, after all.

    • Bob Murphy says:

      I’m not sure what you’re asking from me, Ken B. If you stop saying that religious people are intentionally refusing to use their reason, etc. etc., then I’ll stop getting upset at you claiming that. Is that what your deal is? 🙂

      • Ken B says:

        Kinda, but I’d strike out ‘intentionally’. Reflexively is my word for the phenomenon.

        I think you get too emotional on a couple topics, and it drives you. I concede I am also sometimes acidulous on the same topics. I will make a good faith effort to step it down a bit there, and hope you will do the same.

        In any event I am off for a couple weeks, so your blood pressure can come down. 🙂

  14. AJS says:

    It’s been pointed out, but I don’t see how any thinking person can defend Krugman here. Look at the quote again:

    “In other words, if you believe that the iPhone really might give the economy a big boost, you have — whether you realize it or not — bought into a version of the “broken windows” theory, in which destroying some capital can actually be a good thing under depression conditions.”

    This is wrong. If you believe that people buying new iPhones might boost the economy, you aren’t buying into the broken window fallacy at all, because it doesn’t apply. The broken window fallacy involves the involuntary destruction of goods, not the voluntary replacement of goods. It’s an upgraded window the shopkeeper chooses to purchase, not a broken window the shopkeeper must replace.

    Moreover, you aren’t even buying into the notion that ” destroying some capital can actually be a good thing under depression conditions” because iPhones aren’t capital.

    He is wrong in every way. You can try to defend what Krugman MEANT to say, but what he ACTUALLY said is demonstrably, 100% incorrect.

    • Tel says:

      Right you are. Bang away on the basics: voluntary activity vs coercion is the very heart of the Libertarian world view.

      Krugman will never accept that such a distinction exists, so he gets it wrong every time.

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