AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (33 comments)

  1. Seattle Sam

    When your employer is the New York Times, you are likely to repeat every fallacy they advance.

    So, to complete his logic train, if we blow up the Times building, they will have to build a new one, and we’ll all be better off, right?

    1. Capt. J Parker

      Incorrect. If you demolish the times building and then stop, THEN we are all better off. ;)

  2. I agree that Krugman is practicing politics, rather than economics. I doubt if there is anyone on the planet whose level of respect is greater than what he has earned, with the possible exception of Barry Hussein himself. Since politics is what he is crafting, I say we go to the poor and middle class people that Dr.K and Barry bleat for, and tell them point blank that their heroes want to dip deeper into their pockets. Who will be hurt worse than those who are already barely making it? WHy should the demagogues continue to enjoy electoral success based on the votes of those they most severely punish? Cheap energy = jobs and prosperity.

    1. Capt. J Parker

      How very true. The left’s climate and energy agenda is bound to most hurt the people the left claims to champion. Although, I have to say, the left seems to have done a good job of out maneuvering pro-growth fiscal conservatives at every turn by labeling them fat-cat trickle-down free-market too-big-to-fail monopolists with pointy white hoods hanging in their closets. If this is going to be countered the GOP needs to find an ivy league Sarah Palin. I’ve had it with candidates like Mit – Couple of Cadillacs – Romney and John – hundred years in Iraq McCain.

  3. Michael P. Stein

    I believe he _is_ claiming that currently too much money is hidden in mattresses – well, in bank accounts, at least – and is not being spent on anything, either by the owners or by other businesses borrowing pieces of those cash piles. If that is indeed true, then it’s not the broken window fallacy _if_ the new spending comes from money that is sitting in those mattresses.

    Forcing them to invest that cash _now_ would divert _future_ spending, yes. But I understand him to be arguing that we have a chicken-and-egg problem of nobody being willing to spend until the economy improves, but the economy being unable to improve until spending picks up.

    Whether coal-fired utilities specifically are among those businesses sitting on piles of unused cash is a question I don’t see that he’s even tried to answer, however.

    1. Seattle Sam

      You lump bank accounts and mattresses together? What do you think banks do with their deposits? What do you think coal utilities do with their cash? Do you know any corporate treasurers who use mattresses for their cash assets?

  4. and many of the jobs that will be eliminated by BHO’s policies are precisely those of the middle class and poor. We shouldnot let either B

  5. Christine Lagarde, the managing director of the International Monetary Fund, said Thursday that climate change will drive job creation. “Climate change will create jobs. It will create disasters before it creates jobs, but it will create jobs,” Lagarde said on the MSNBC program “Morning Joe.”

    via thehill.com

  6. why is the “broken window” fallacy not front and center in our defense spending in the Middle East?

    or for that matter in the US for immigration borders, the TSA or MedicAid?

    basically what the argument is about is whether citizens get to spend their money on what they want verses what govt thinks is a better purpose.

    I do not subscribe to the idea that citizens are “wiser”.

    Citizens will buy a Hummer or a 500k house or pornography or $500 tickets to rock star concerts instead of buying heath insurance or building up their 401K and later… taxpayers will rescue them.

    Individual mandates – FICA is an obvious “diversion” of citizens monies into something that ultimately benefits them but would not if they were not forced to pay into it.

    we’re not talking about one country here. We’re talking about 30 countries, or more, the most advanced countries in the world verses countries that don’t do this – 3rd word countries.

    the countries with the LEAST GOVT and MOST LIBERTY are, in fact, 3rd world countries!

    1. Eric T.

      “…if they were not forced to pay into it.”

      Thank you for at least acknowledging that government equals force.

    2. “I do not subscribe to the idea that citizens are “wiser”.”

      The age-old argument for authoritarianism. It isn’t the servile mind, such as yours, that so much troubles me, as the fact that it insists on imposing that servility even upon the arbitrary and unwilling.

    3. craigers61

      “The countries with the LEAST GOVT and MOST LIBERTY are, in fact, 3rd world countries” really, you don’t know the third world do you? Vast poverty caused by intrusive gov, high taxation, crony favoritism, complicated legal structures that make it almost impossible to make a biz legal, buy a property, dead capital due to all the bureaucracy etc. I recommend reading Vargos.

  7. If Krugman were consistent, he would have to agree that “doing nothing” with respect to climate change surely is the best policy. If climate change does occur and have the disastrous consequences that the alarmists claim it will have, then this will only lead to more investment and spur economic growth. On second thought, maybe subsidizing carbon-emitting processes would be even better!

  8. The countries with the “most liberty” are 3rd world countries? Better take those meds, and quick….

  9. Mosihasteen

    Utter nonsense. Simple but to the unflinching point. Every article he’s had published is a trove of unmitigated leftist politicized tripe. The man’s Nobel Prize carries as much legitimacy as Obama’s Peace Prize (to be read as: zero) He’s a handmaiden for the policies (Obama’s) that will do the common man the most harm as is mentioned.

  10. Bill Stepp

    The broken window fallacy illustrates the basic microeconomic point that investment is made to satisfy consumer demand. There is no demand for a broken window. The fact that PK fails to understand this shows that he really doesn’t understand economics. Ditto for all Keynesians.

    1. Well and succinctly said.

      PK believes that because a person prefers that his window be NOT broken, over the amount of hoarded cash needed to fix the window, that somehow breaking windows fixes the dearth of profitable investment opportunities.

      He should consider the possibility that it instead *increases* the incentive to hoard cash to account for the now greater anticipated outlays that will be needed to fix future windows, along with the further decline of new investment opportunities as resources are diverted and specialized to support a fixing-windows economy.

      Circular flow thinking is chicken-and-egg thinking. It fails to capture the essential underlying big picture of any economy–coordination and specialization of production and trade.

  11. It looks like you’re just preaching to the choir here. But who cares about Paul Krugman tell the politicians to not prematurely decommission the power plants just for a few construction jobs. Nevada already has passed a bill replacing all its coal plants and God knows how much rates will go up until the new plants are paid off. Expect to see the same where you live.

    The same holds true for stadiums and schools. They always get torn down and rebuilt for no good reason. Fenway Park built in 1912 will always be the best stadium for baseball because Babe Ruth played there. I recall my elementary school was a run-down slum and I loved it; I was so disappointed to find that it was remodeled. And the think that taxpayers paid to take away that building’s character.

    I think really our who construction industry is built with throw-away in mind. You have your home, then oops a home buyer on HGTV comes into a kitchen that’s better than yours and they say they could never live in an outdated hole like that. It works on your brain. So it seems this whole economy runs on the parable of the broken window.

  12. What you’re missing here, is that without a set of new rules aiming at reducing carbon emissions, industry and generally the private sector will never incorporate such goals in its policy-making. True, money spent on new facilities could be spent elsewhere, but that would still leave the initial problem intact. Unless you still believe climate change is just a liberal agenda…

    1. “industry and generally the private sector will never incorporate such goals in its policy-making”

      MAY never. “Will never” is too strong. The private sector does respond to consumer preferences (whether the World Wildlife Fund or Walmart)–that is pretty much what the private sector does.

      Your complaint against the private sector is really a complaint against the value systems of the public, and a desire to see a different value system imposed upon them. Whether justified as a defense of some innocent individuals against the externalities of a larger unsympathetic public, or merely an ideological aversion to human presence, your desire to impose against “the private sector” is authoritarian.

      1. A clear distinction must be made between the private sector serving the public and its values-based preferences, and the general context in which they both function.
        My complaint is not with the public. My complaint is that in order to avoid being accused of restricting the freedom of the market, many are willing to accept grave environmental risks that endanger the market itself. Keep in mind, we are talking about climate change, not an ordinary domestic/local policy.

        The argument is not in favor of a government dictating market decisions or even mastering a grand scheme. Rather, it is in favor of a government acknowledging the facts and saying what the direction must be. It is then the market’s responsibility to respond through free and unhindered competition.

        1. “Rather, it is in favor of a government acknowledging the facts and saying what the direction must be. It is then the market’s responsibility to respond through free and unhindered competition.”

          Point taken. I didn’t get that from your first post. This is not authoritarian.

          But it does reveal a view of governmental institutions as being uniquely accurate, authoritative, or trustworthy in pronouncements of truth, as compared to private institutions. I find this dubious. There is no reason why pronouncements of vote-buying fund-raising politicians or the bureaucrats who serve them should be more credible than those of private scientific, industry, or even openly ideological groups or individuals, and plenty of reason to believe that they should be considered the least credible of them all.

          Public education is important, and designating a central authority to dictate what the truth is seems a simple solution. But truth is rarely so clear or simple, and the incentives of governmental institutions hardly lend themselves to credibility.

          1. I agree that the concept of a central authority holding the accurate truth is problematic. But that’s what it is. Problematic, not false.
            The suspicion towards government is justified. On the other hand, government is only an instrument. We can learn when and how to use it, instead of giving up on it out of fear of overusing it.
            I firmly believe that over a certain amount of time, the market will always find the best combination of scientifically efficient and financially viable solution to any problem. But what if, when it finally happens, it is too late? This is no rhetorical question.

          2. “Problematic, not false.”

            It is not impossible for *anyone* to utter truth. The issue is *how* relatively problematic it is. The incentives of a popularly elected undismissable political institution with police powers is more problematic than the dynamic multifaceted individually narrow decentralized reputation-dependent solutions the private sector provides. Yes, the latter makes disseminated answers and consensus more difficult to achieve, but it makes *correct* answers and *rational* consensus much more likely.

            Put it this way, if you want pronouncements that are false, misleading, disingenuous, or motivated entirely by incentives other than truth, there may be no better place to go than the government. Or put it this way, using the government as an authority on truth is like using Bernie Madoff as an authority on investments. The view of politicians as altruistic enlightened champions of the public good is bizarre. Politicians are tools of imposing one’s will upon unwilling others, not creating understanding.

            “But what if, when it finally happens, it is too late?”

            That isn’t a proposition that supports the use of the state as an authority on truth. Rather it assumes it. For instance, if instead of a government bias you had a market bias, you could easily say, “I firmly believe that over time government invasions into the market will be able to solve these problems, but what if, when it finally happens, it is too late?”

          3. As I expected the argument moved toward the question of government. So, we ‘re not talking about Krugman or the environment, but about the age-old question about the role of the government/state which I regard as the essence of the politics of freedom. No question about this.

            The problem is that the “big government” mantra has become a one-size-fits-all dogma that instead of answers just dismisses the question, as you did.

            I have no special faith in any one’s authority. But i believe in facts shaping an accountable government put there by my vote. It is an eternal bet, strife, concern, call it what you like. Just quitting (actually standing aside and leaving your life in other peoples’ hands) is an easy but dead-end choice.

          4. “The problem is that the “big government” mantra has become a one-size-fits-all dogma”

            I wouldn’t know about that. Instead, I present to you arguments about human incentives. But feel free to create whatever excuse you need to dismiss arguments you don’t feel comfortable considering.

            “dogma that instead of answers just dismisses the question, as you did.”

            An ironic projection, given that it is your ignoring of the existence of counterpoint that is dismissive.

            “As I expected the argument moved toward the question of government.”

            Please explain how you can remove the question of government from the issue of government issued standards? Do you really believe that the incentives inherent in a coercive political monopoly are not substantively different than those in a voluntary competitive order?

            “i believe in facts shaping an accountable government put there by my vote.”

            That is indeed a religious faith, one based upon the falsehood that your vote put the government there and controls its behavior. It is a fantasy that gives people great comfort, and government institutions great latitude in abusing it.

            “Just quitting (actually standing aside and leaving your life in other peoples’ hands) is an easy but dead-end choice.”

            I wouldn’t know, as that in no way describes me.

    2. I agree with everything you say, but i know there are times when the incentives given by a facts-based government policy are indeed better. If the government is already bloated, it’s not wise not to use it in the single case where it is needed. Plus, we’re talking about incentives to the industry, not coercive power and certainly not to individuals! No one is going to force you to do anything.
      So, i’m repeating the question: how are you going to curb carbon emissions, given that you accept they are a problem? And also do it quickly, globally, and in a market-friendly way.
      You refer to a counterpoint. Well, the original point is stronger. Initially there was an ambivalence, on the basis of insufficient data. So more data was asked for and more data was gathered. Now the global warming discourse is over 20 years old and no real government action has been taken. How long are you willing to wait? Are you ever going to be convinced? In the meantime, how has the industry responded? Where are the hybrid cars? Why is solar power still so expensive? Is this such a complicated technology or is it just that it wasn’t comparably profitable?
      I don’t blame the industry. They will always decide on profitability, that’s what they do. But in order that profitability advances the common good, the market must be truly free. Either equal incentives will be given to all, or all incentives must be abolished.
      You see, oil consumption was always subsidized thanks to the presence of US army in the middle east. Oil companies have always received tax brakes in order to invest in R&D. In such a twisted market oil will always be more profitable. The industry will never bother to take the step to renewables. The planet will boil, (or not, if other countries take the lead in new technologies), and analysts 20 years from now will lament the american decline.
      All this because huge interests, after entrenching their political influence, are intimidating everyone about “big gov”. Talk about conflict of interests.
      Please answer the question above.

      I believe we are more like-minded than you think. I want the government to be small, not non-existent, and certainly not biased.

      1. Albert

        In the off chance you are still checking this thread, I will attempt a response, as it appears vikingvista has finally given up on you.

        No, you DON’T agree with everything he said, because you obviously don’t understand everything he said.

        vikingvista told you that government is almost certainly lying to you, and doesn’t operate for your benefit.

        Plus, we’re talking about incentives to the industry, not coercive power and certainly not to individuals! No one is going to force you to do anything.

        Restrictions or taxes on emissions, mandates of auto fuel economy and fuel types, taxes taken from taxpayers by force to subsidize “alternate energy” boondoggles aren’t coercive? I can’t, then, imagine what you would call coercive. Government IS force. It has no other purpose. It is the how one group of people forces their views and choices on another group of people.

        …and certainly not to individuals! No one is going to force you to do anything

        Really? You don’t consider taking money from me by force and spending it in ways I wouldn’t choose to spend it coercive? Limiting my choices isn’t coercive?

        So, i’m repeating the question: how are you going to curb carbon emissions, given that you accept they are a problem? And also do it quickly, globally, and in a market-friendly way.

        Well, this will be easy: since I don’t accept that there’s a problem, I have no interest in curbing carbon emissions. End of discussion.

        I don’t blame the industry. They will always decide on profitability, that’s what they do. But in order that profitability advances the common good, the market must be truly free. Either equal incentives will be given to all, or all incentives must be abolished.

        Not sure what you mean by “the industry, but individuals and groups of individuals seek to advance their own interests by serving others. Profit is an indication that they are using scarce resources in a way those others like and are willing to pay for. Loss is an indicator that they aren’t.

        So yes, “the industry” seeks to profit by responding to consumer demand. Those businesses that correctly guess what will most benefit consumers will prosper, those that don’t will fail.

        A “free market” is one that isn’t restricted. Government can’t create or encourage a free mark, but can only restrict it.

        Do you know what “the common good” is”? The correct answer is no. Only each individual deciding for themselves can determine what is in their own best interest.

        The planet will boil…

        Utter nonsense. There’s no evidence of that.

        1. Thank you for the answer.
          Your denial of global warming is telling. I hope you have your own personal data and evidence, and I hope you share them with the rest of us.

          The government instructs car makers (the industry) to burn a bit less gasoline, and you call this coercive force? Poor old car makers! I wonder why they supported the measure. Meanwhile the oil companies do appreciate your taxes and support!

          You -too- are dealing with a specific issue in the general context of “government”. So, yes, your argument is legal, but your response is inadequate. While a fan of minimal state intervention, you have nothing to say about the huge violation of this rule that oil industry subsidies are. I made specific questions, i got only out-of-the-book answers about taxes and free-market 101. These principles are best served if applied to all directions.

          Common good is exploring the possibilities while retaining all the alternatives.

          1. Albert

            Your denial of global warming is telling. I hope you have your own personal data and evidence, and I hope you share them with the rest of us.

            Telling: How? I don’t deny that climate changes, I deny that people burning fossil fuel will cause the planet to boil, as you put it.

            No, I have no evidence, and neither do you or anyone else.

            Notice that all 73 of these commonly used climate models have failed to predict temperature trends in the real world.

            The government instructs car makers (the industry) to burn a bit less gasoline, and you call this coercive force?

            Yes, that is coercive force. Car makers can’t refuse to comply.

            Poor old car makers! I wonder why they supported the measure.

            They support the measure, as they support all government mandates, because it protects them from their major competitors. All auto makers have the same restriction, the cost is easily passed directly to consumers, and small, innovative companies have a harder time entering the market. What’s not to like? Don’t think for a minute that large car companies are shining examples of free market entrepreneurs.

            The same is true of seat belts when they were first introduced in the 1950s. Although cheered as a great safety measure, few consumers were willing to pay the cost of the option. When Government mandated their installation in all cars, the cost and a guaranteed profit were built right in to the price of the car.

            Meanwhile the oil companies do appreciate your taxes and support!

            I am not in favor of subsidies for any company for any reason, but maybe you can point out what subsidies oil companies get, when they pay a higher total percentage of their income in taxes than any other industry. You mentioned troops. What else?

            You -too- are dealing with a specific issue in the general context of “government”. So, yes, your argument is legal, but your response is inadequate.

            Can you please rewrite that so it makes sense?

            While a fan of minimal state intervention, you have nothing to say about the huge violation of this rule that oil industry subsidies are.

            We hadn’t previously gotten to that point, and I believe I’ve now addressed it.

            I made specific questions, i got only out-of-the-book answers about taxes and free-market 101.

            Those are the correct answers.

            Did you mean these questions?

            How long are you willing to wait? Are you ever going to be convinced? In the meantime, how has the industry responded? Where are the hybrid cars? Why is solar power still so expensive? Is this such a complicated technology or is it just that it wasn’t comparably profitable?

            1. I’m not waiting for anything.
            2. I am convinced.
            3. Don’t understand the question
            4. Consumers apparently don’t like them very much.
            5. I don’t know. That’s an overly vague question.
            6. PC solar is a relatively simple technology, but has a number of serious problems. It is extremely low in energy density compared to fossil fuel, there’s a limit of about 1kw/square meter of sunlight striking the Earth, panels are extremely toxic to make (but of course we’ve exported that externality to China), sunlight is extremely variable and there are no viable storage systems to level it out, there are serious objections from environmentalists, There are few large, available areas near high usage areas, and it requires a whole new distribution network. Did I miss anything? Oh yeah, it’s still not, and may never be competitive with existing energy sources.

            Other than that, solar is great.

            These principles are best served if applied to all directions.

            Meaning?

            Common good is exploring the possibilities while retaining all the alternatives.

            That doesn’t actually tell me what the common good means, but more importantly who gets to decide? Can I decide what’s best for everyone else? Can you? Who can?

          2. Oops, sorry. Please ignore the blue text that starts with “…have failed to predict temperature trends…”

            The link just prior to that including the words “…commonly used climate models…” is OK.

  13. Ron H.
    The evidence is out there (http://climate.nasa.gov/evidence)
    Do you reject NASA because it is a government agency?

    In the site you provided, and others, I found that there is a consensus -among skeptics- that climate change advances in half pace after all. So, they do contend global warming isn’t a hoax. It’s only slower. Hooray!
    What does this mean?
    a) We can leave the problem for our grandchildren to solve
    b) We have the luxury of time to take focused action

    Why is time of such relevance? Because the CO2 and methane emission took years to create the problem. Many years will be needed for an agreed course of action. And many years will be needed before results are seen. (For example, the ozone layer hole was detected in the 70s, CFCs were banned in the early 80s, it’s been a few years that the hole is closing, and it will close by mid century). So whatever extra time we have, should be treated as a gift, not an excuse for looking the other way and stalling.
    Imagine if the OL hole had been dismissed as a hoax.

    About the car manufacturers. They had plenty of time and freedom to make what cars they wanted. They refused to make efficient ones but it didn’t matter as long as gasoline was very cheap. Once it stopped, they were not prepared to meet the demand for smaller and economic cars. Result: they went bankrupt. Was there a way to avoid such a development? Of course! If people had foreseen that because of China and other developing countries demanding oil like crazy after 2000, prices would skyrocket, the early demand for more efficient cars would induce car makers to adjust. Unsurprisingly it did not happen, people are no analysts.
    The point: Free market is a tool, not a brain.

    About the costs being passed to the consumer: so does the cost of every car part! Would you buy a stripped-down car?
    Seat belts cost little and have a meaning. They save lives. That’s why fatalities between 1945-1960 plummeted. (http://en.wikipedia.org/wiki/List_of_motor_vehicle_deaths_in_U.S._by_year). You said it yourself, initially consumers were not willing to pay the extra cost. But you fail to acknowledge the fact that cars in the same period were becoming a lot more dangerous (more and faster cars, more drivers, more miles) while the public had no way of realizing this timely.
    The point: Again, consumers were unable to foresee the future -how strange! The mandate saved thousands of lives.
    My point: a fatality (a possible result of one’s opposition to mandatory seat belts) passes an even bigger cost to his fellow citizens, not to mention his family.

    The same goes for the amount of fat, salt and sugar in food. No restrictions are in place, and now we have a serious obesity pandemic. That’s no surprise, people adore salty and sweet tastes, and they are understandably unable to foresee the implications down the road. Government should not dictate “how much” but rather, to imply what is “too much”. As far as your argument goes, plain poison could be legal to sell as food, provided it doesn’t kill immediately in order to avoid the correlation!

    About oil-company subsidies, 4 links:
    http://www.forbes.com/sites/energysource/2012/04/25/the-surprising-reason-that-oil-subsidies-persist-even-liberals-love-them/2/

    http://priceofoil.org/fossil-fuel-subsidies/

    http://oceana.org/en/our-work/climate-energy/offshore-drilling/learn-act/oil-gas-subsidies-myth-vs-fact

    http://www.progress.org/gasoline.htm

    You’ll see that they are quite balanced articles
    The point: THERE ARE such subsidies, apart from the military presence.
    My point: as i said in previous replies, either keep oil subsidies and stop complaining about incentives toward an alternative course, or get rid of ALL of them.

    About solar energy and hybrid cars: they are both underdeveloped technologies with negligible active commercial presence, compared to 100 years of coal/oil-based electricity and internal combustion engines. The main difference is that the latter created a market, while the former attempt to succeed them or at least earn a market share. Let them compete on an even field.

    Concluding,
    The way i see things, it’s all about a triple balance among the individuals, the companies and the government. I reject the notion that government is a de facto undesirable force. True, it should be kept small and in check, but laziness to do so doesn’t pass as libertarian principles.

    Government is only a tool, ideally an umpire. Usually, the market -also a tool- and the people will do fine, but in the scale of national policies the two can have different priorities. In such cases, a group of well-informed people, through government, should bring into discussion such aspects of an issue that an individual or a company cannot or will not.

    Holding the government from playing its role, regardless of the ideological pretenses, will leave individuals alone against corporate interests and cartels. Not that there is something de facto wrong with them, there just won’t be a balance, ever.

    1. Correction

      …but laziness to do so, and instead dismissing government, doesn’t pass as libertarian principles.

      How do you insert a link in a word?

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