Which American cities have the highest demand for new construction at the moment?
Tuscaloosa, Alabama, and Joplin, Missouri.
This is the "broken window fallacy," of course. Destruction of property artificially increases demand, which in turn increases economic activity, because, well, people need to rebuild homes after they are destroyed by tornadoes.
So what do Keynesian economists--the lunatic, Ponzi schemer, demand-curve fetishists in charge of America's finances at the moment--have to say about the broken window fallacy? By and large they argue that destruction of property can be economically useful, particularly in times where labor/goods are underutilized due to depressed demand caused by an economic recession.
Tuscaloosa, Alabama, and Joplin, Missouri.
This is the "broken window fallacy," of course. Destruction of property artificially increases demand, which in turn increases economic activity, because, well, people need to rebuild homes after they are destroyed by tornadoes.
So what do Keynesian economists--the lunatic, Ponzi schemer, demand-curve fetishists in charge of America's finances at the moment--have to say about the broken window fallacy? By and large they argue that destruction of property can be economically useful, particularly in times where labor/goods are underutilized due to depressed demand caused by an economic recession.
Don't believe me? Think I'm slandering the Keynesians? Check out this insanity from their standard bearer, Paul Krugman, in 2008.
Read very carefully Krugman's quote of Keynes. These people really believe that building pyramids, or throwing money down holes and having people go look for it, would be economically preferable to fiscal restraint. This is what we're up against, folks.
Now let's be fair. I think most intellectually honest, sane Keynesians would say "okay, useless activity is better than nothing, but only when demand is depressed. Once things get back to normal, shut that stuff down and run surpluses to pay for it." That's fine as far as it goes, but there are two problems with the argument: (1) it fails to recognize the impact of such policies on savers and other "good actors," and this has a poisonous effect on a nation; and (2) the "we'll run a surplus when times are good" line is the stuff of political fairy tales. Yes, we ran a brief surplus in the late 90's, a tiny surplus that was a miraculous combination of private innovation (which raised revenue) and temporary conservative political success, the high-tide of Reaganism.
This is a difficult issue, of course, but if the Keynesians are wrong the implications are grave. One way to pose the question of whether Keynesian economics works is to compare stimulus to the "broken window." Is the increased demand for housing in Tuscaloosa any different than the artificial demand created by injecting "stimulus" funds into the economy?
Read very carefully Krugman's quote of Keynes. These people really believe that building pyramids, or throwing money down holes and having people go look for it, would be economically preferable to fiscal restraint. This is what we're up against, folks.
Now let's be fair. I think most intellectually honest, sane Keynesians would say "okay, useless activity is better than nothing, but only when demand is depressed. Once things get back to normal, shut that stuff down and run surpluses to pay for it." That's fine as far as it goes, but there are two problems with the argument: (1) it fails to recognize the impact of such policies on savers and other "good actors," and this has a poisonous effect on a nation; and (2) the "we'll run a surplus when times are good" line is the stuff of political fairy tales. Yes, we ran a brief surplus in the late 90's, a tiny surplus that was a miraculous combination of private innovation (which raised revenue) and temporary conservative political success, the high-tide of Reaganism.
This is a difficult issue, of course, but if the Keynesians are wrong the implications are grave. One way to pose the question of whether Keynesian economics works is to compare stimulus to the "broken window." Is the increased demand for housing in Tuscaloosa any different than the artificial demand created by injecting "stimulus" funds into the economy?
Regrettably, the answer must be no. Perhaps they are different in degree (in that the stimulus might accidentally hit upon something of objective economic value), but not in kind. In each case, demand is created without respect to value. It's all just digging holes and filling them up. This is a basic insight that, as I make my way in the professional world, I'm just beginning to understand. Economic activity cannot be sustained for very long without the creation of real value. Eventually people will stop paying for it.
This was a fairly simple problem to solve in agrarian or even early industrial economies. Economic activity (even parasitic service-related activity like law, entertainment, journalism, etc.) revolved around things made, grown, or improved upon. Economies were smaller and demand was more inelastic since most of the goods produced (food, houses, saddles, wagons, farming tools, livestock) were necessary.
But in a modern economy there are more service-related (I called them "parasitic" above, and I'll repeat it, though I don't mean it as a slur) occupations. Of the goods that are made, a greater portion are luxury items, or at least not directly related to one's survival. Demand now is a little more volatile. America still makes or produced valuable items, of course. Cars, planes, food, houses, etc. But increasingly the economic activity has completely uncoupled from the real value added by such production.
(I would also note, in the case of aircraft and automobiles, that many companies producing such items (most notably, but not exclusively, GM) have fallen on hard times thanks to exploding costs caused by a number of factors--unions, regulations, myopia--best left for another post.)
What is most alarming about America's current predicament is that the Krugmans of the world are in charge and don't seem to care about the connection between the value of things and the economy. As I noted above, it's crazy to think people will continue to pay for activities, goods, or services that aren't valuable. The only market participant that will do that is government. That's why the gang in charge is so terrifying. These are people who believe activity for its own sake is more important than prudent fiscal and regulatory policy that rewards real growth, real production, and real value. But as things continue to get worse, do we really think they'll stop the pump before we go broke?
If all else fails maybe they'll start going door-to-door looking for windows to break.
I'm kidding. (Or am I?)
This was a fairly simple problem to solve in agrarian or even early industrial economies. Economic activity (even parasitic service-related activity like law, entertainment, journalism, etc.) revolved around things made, grown, or improved upon. Economies were smaller and demand was more inelastic since most of the goods produced (food, houses, saddles, wagons, farming tools, livestock) were necessary.
But in a modern economy there are more service-related (I called them "parasitic" above, and I'll repeat it, though I don't mean it as a slur) occupations. Of the goods that are made, a greater portion are luxury items, or at least not directly related to one's survival. Demand now is a little more volatile. America still makes or produced valuable items, of course. Cars, planes, food, houses, etc. But increasingly the economic activity has completely uncoupled from the real value added by such production.
(I would also note, in the case of aircraft and automobiles, that many companies producing such items (most notably, but not exclusively, GM) have fallen on hard times thanks to exploding costs caused by a number of factors--unions, regulations, myopia--best left for another post.)
What is most alarming about America's current predicament is that the Krugmans of the world are in charge and don't seem to care about the connection between the value of things and the economy. As I noted above, it's crazy to think people will continue to pay for activities, goods, or services that aren't valuable. The only market participant that will do that is government. That's why the gang in charge is so terrifying. These are people who believe activity for its own sake is more important than prudent fiscal and regulatory policy that rewards real growth, real production, and real value. But as things continue to get worse, do we really think they'll stop the pump before we go broke?
If all else fails maybe they'll start going door-to-door looking for windows to break.
I'm kidding. (Or am I?)
