Thursday, 17 March 2011

Broken windows

A big hello to Leighton Smith’s listeners,

The post Leighton recommended is here:

Another I can recommend is this one, posted after the first quake:

Right here you can find all the posts on the Broken Window Fallacy .

Here, Peter Schiff explains why it's idiotic to think Japan's earthquake will "stimulate" the economy.

Yaron Brook and Terry Jones talk about the same idiocy. (Eight-minute video.)


  1. the drunken watchman17 Mar 2011, 14:45:00

    I'm just reading "The Next hundred Years" by George Friedman.

    He says the Great Depression in teh USA was ended by World War 2.

    What do you think about this comment?

  2. Which link to Leighton Smith's comment that you mentioned here? Its nice to go to the link and listen to what he said so one can get a picture of what actually his comment was or he said.

  3. @Drunk: I don't agree with it. And given that it promotes the idea that wars cause prosperity, I think it's one of the most dangerous fallacies around.

    I'd recommend these four articles giving a strongly opposing view:

    * “What Ended the Great Depression?”
    by Paul Walker
    Post online at

    * “Saving the Depression: A New Look at World War II”
    by Mark Skousen
    Article online at

    * Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War' by Robert Higgs.


    * 'From Central Planning to the Market: The American Transition, 1945-1947'

    As Robert Higgs says in the last article, " It was no miracle to herd 12 million men into the armed forces and to attract millions of men and women to work in munitions plants during the war. The real miracle was to reallocate a third of the total labor force to serving private consumers and investors in just two years [from 1945-47]. That event, whose reality is unambiguous, is unique in U.S. economic history."

    It was caused not by government intervention, but by government getting out of the way--and it went against everything every Keynesian ever predicted before or since.

    And that miracle was belied in the U.K., where govt continued to strangle the country for years to come, with "the war" doing nothing to rescue anyone from economic gloom.

    Anyway, those are some good articles. You might also like these book excerpts:

    * pp590-594 of George Reisman's 'Capitalism,' online at

  4. Leighton Smith is an idiot. Heard him on the radio this morning fatously arguing in favour of religious belief.

  5. @Anonymous: Yes, he has his mornings--and this morning was not one of them.

    Mind you, at least he puts his name behind his opinions. ;^)

  6. He says the Great Depression in teh USA was ended by World War 2.

    By 1937 the U.S economy had recovered by most measurements to the level it was at when the crash happened in 1929.

    WW2 did not end the depression, it had already ended.

    The U.S came out of WW2 and went on to a very busy and profitable period not because the war stimulated their economy but because it destroyed pretty much every one elses large industry and allowed the U.S to establish international institutions that vested other nations in their currency.

    But speaking of Broken Windows and stimulating economies; I was recently listening to a talk given by John Papola (a U.S promoter of libetarianism) and he made the point that what's missing from the concept is any valuaiton of the loss.

    That while you can see an increase in activity to replace and rebuild which increases many businesses cash flows and therefore a measureable increase in GDP relying on that blunt measurement overlooks subtracting the value lost.

    Measuring GDP is measuring activity and does not measure capital value.

    Which is an interesting distinction. It says while you may have lost wealth at least you'll be occupied and busy afterwards.

  7. @Fentex,you are in error.

    Far from recovering, as many other economies were buy then, in 1937 the U.S. Economy went into another tailspin and entered its Depression within the Depression (sometimes, deservedly, called the Roosevelt Recession).

    WW2 did not end the U.S. Depression. This much is true. But with 12 million American men still unemployed when the European war broke out, it had far from ended.

    In other parts of the world however it certainly had ended. Mind you, these were the places that had most thoroughly rejected the nostrums of Keynes.

  8. @Fentex: Yes, you're right about the error of taking the measure of activity as the measure of wealth.

    It's the error of thinking that busy-work constitutes riches.

  9. Just because the U.S economy took a dip again doesn't mean it hadn't recovered to it's previous wealth by 1937.

    The measure of unemployment was still unenviable and took a nasty increase in 1938 but that's not a measure of national wealth and to use it as such is to support the argument of beneficial broken windows - because the activity it stirs will also reduce unemployment though not increase over-all wealth.

  10. @Fentex:

    The Depression Within the Depression was a real one. But the 1937 "recovery" was only a phony baloney boom built on sand, i.e, on government "stimulus."

    Writing in the Saturday Evening Post in 1938, journalist Garet Garrett had this to say:

    "All through the rise in American production, even when it was at the top in 1937, there was a sign of weakness in it. The high output was of such things as the economist calls nondurable goods, meaning the things we make today and consume tomorrow. Of durable goods, meaning such things as machinery, power plants, industrial buildings and houses, the great deficit that had accrued in the depression years 1929-32 was never made up. This means that in order to reach again the level of 1928 in the production of nondurable goods, we were using very largely the equipment we already had, and wearing it out. As far as we did that, we were eating our tools. Through five years of recovery, ending suddenly in another depression, it is doubtful the total wealth of this country was increased at all."


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