What’s Right With the World
August 14, 2013 Methodology

If you don’t read all of my colleague Steven Landsburg’s books and blog posts, you really are missing out on something special. In a short post from a couple days ago, Steve demonstrates very nicely everything that is right with the world, and illustrates why not only is it such a pleasure to have him as a colleague, but what separates thinkers, true thinkers, like him from a large majority of the reactionary anti-reasoning folks out there. 

What is the story? Well, one of the most forcefully argued ideas from not just “free-market” economists but most economists is that destruction cannot be good. Indeed, I go into quite a bit of hysterics in class asking my students to go home over October break and smash down their parents’ doors and tell them that in college they learned that this would be good for the economy. We don’t have to rehash the broken window argument here, after all, a huge number of the posts on this site are dedicated to illustrating it, albeit without naming it.

Two points are worth noting about the Broken Window Fallacy, however, First, is that if you follow the conversations surrounding when destruction is “good” or not, that discussion generally seems to fall along political lines – with the more Keynesian and statist oriented folks looking for ways to justify destruction as good while the less statist folks generally looking for ways to justify the other conclusion. Now, that is not generally a healthy way of doing business, and why some particular economic theory should so acutely fall along political lines in its belief and application ought to tell you that something is fishy. Second, is that almost no one spends an inordinate amount of time asking themselves if they might be wrong, Or better yet, almost no one spends any significant amount of time asking themselves what would have to be true for me to be wrong. Now, I do this all the time when I do my environmental work, and my labor market work, and all of the general economic principles I teach about, but I don’t write papers on them. Indeed, one of the ways I try to simulate interest at the start of some of my class lectures is to debate myself – both as a way for students to learn more about a topic, and to see how complicated it can be, but also as a way to help them develop reasoning tools. And this is the reason for this post.

My colleague Steve has just written an excellent little paper questioning the strongly held position (one that surely follows from the theory and logic) that destruction is always and everywhere bad. Unlike so many people out there who have taken strong positions, as Steve has on this topic, he took the time to ask, “What would have to be true for the Broken Window Fallacy to NOT be a fallacy?” And indeed, you will enjoy the idea that he has come up with. Under certain conditions (namely the utterly horrible distortionary tax system we have) the ultimate impact of a slew or broken windows would be a less distortionary tax code, leading to more work effort and a stronger economy. Note that this is NOT the mechanism through which folks like the Great Krugman support alien invasions. But you should pay close attention to Steve’s argument. More important, you should take seriously to heart and mind what Steve regularly does (and indeed, all of those, especially on my campus who criticize him rarely pause to understand that this is how he operates – reason and logic are king, not emotion and team playing) – because it is an excellent example of what a serious person who is seriously in search for the truth does. And the best part of all of this, knowing Steve, is that he does so without taking himself way too seriously. Indeed, if you follow his work, he almost revels in discoveries like this, in engaging with students, friends and colleagues so as to discover flaws in his logic, to be proven wrong! How many of us humbly accept, or indeed look forward to being proven wrong? We ought to begin a series of posts on that idea.

Finally, and this is directed toward the students in the audience. Suppose you examine the US economy and do find that we are on the “correct” side of the Laffer curve and that the conditions Steve lays our are indeed prevalent in the US. Does it follow that having each and every home owner kick down her or his front door is a good idea? Explain? 

"4" Comments
  1. QED,WC.

    Sending this one to my cousin in Denver.

  2. I’m not sure I follow Steve’s logic on that one: if we’re poorer, we work harder, gov collects more income taxes, and under certain conditions lowers tax rates. Hmm. We may work “harder” but the amount of value we generate, and thus the amount of extra taxes the gov. may collect, may be lower post-hurricane than what would have been collected pre-hurricane. Said in another way, the amount of “richness” in stock adds to the benefit you get our of a given amount of effort. If some of that “richness” is destroyed, the extra effort may not generate more “benefits” (i.e. income taxes) as the lower level of effort at a higher level of “richness”, regardless of the implications of the tax curves.

    That being said, I fully agree that we need to constantly ask ourselves what would have to be true, for us to be wrong. Especially when it comes to some of the more tricky economic questions which we “libertarians” often wave away and pretend we have solutions to; like roads, or basic research etc., but which we really don’t have fully formed solutions to.

  3. WC, each time I try to reply, it looks like I have to enter my email address. I am uncertain whether this is an Apple problem, or a WorldPress problem.

    See a button to click below….see what happens. Is it permission for the IRS to look? Just kidding.

  4. I was going to say, some of the argument depends on where we sit on the Laffer Curve, but it also is about where we sit on the regulatory curve, which is an additional form of taxation.

    Steve’s equations are beyond my ken, but I will accept their validity, and will try to understand. Clearly there are conceivable circumstances (as he posits given our perverse system of taxation) that destruction can for a time have theoretical beneficial effects. It must be a gas to have such a brilliant mind down the hall.

    However, it is still bad to spill ink on the carpet, or break down the front door.

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