A broken pipe and the broken window fallacy

The bursting of the BP oil pipe in the Gulf of Mexico, which is gushing millions of barrels of petrol into the ocean, despoiling hundreds of miles of valuable beach-front, needlessly killing legions of animals, and diverting thousands of Americans from productive pursuits to the cleanup of perhaps the greatest environmental disaster in history, is going to be a positive for US GDP. So sayeth analysts at J.P Morgan:

Still, cleaning up the spill will likely be enough to slightly offset the negative impact of all this on GDP, J.P. Morgan said. The bank cites estimates of 4,000 unemployed people hired for the cleanup efforts, which some reports have said could be worth between $3 and $6 billion.

“If realized, this would likely mean a near- to medium-term boost to activity that might offset the drags,” Feroli said.

Lord Keynes himself would have been proud of such shoddy economic "analysis", which nowadays passes as wisdom. In his magnum opus The General Theory of Employment, Interest and Money, Keynes wrote:

If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up with town rubbish, and leave them to private enterprise on the well-tried principles of laissez faire to dig them up again… there need be no more unemployment and, with the help of the repercussions, the real income of the community and its capital wealth also would probably become a great deal greater than it actually is.

Wealth Comes From Rising Prices?

In an interview with DemocracyNow.org, Nobel laureate Joe Stiglitz, modern Keynesian (ahem) economist, falls prey to the broken window fallacy by claiming that rising prices can create wealth. Skip to 35:50 in the video to watch the fun. Is it my imagination, or does the body language of so-called economists like Stiglitz and Krugman betray the fact that they seem to know, deep down, that they're spouting nonsense?

Transcript: In Copenhagen, if we had succeeded in raising the price of carbon, uhh, the cost of carbon, uh, of emissions that pollute the atmosphere, that are going to impose enormous costs all over the world, if we had succeeded in doing that, that would've provided a market signal. It would've told firms, you have tooooooo invest, to reduce, uh, your carbon emissions. Uh, there would've been this retrofitting of the global economy to meet the needs of, uh, global warming. That would've stimulated an enormous, uhhh, level of investment, stimulated a lot of, uh, of spending, and that would've been the critical thing that could've gotten us out of, of the current great recession.

In the real world, what is essential for wealth creation is for prices to fall, not rise.

New Item on Obama's To-Do List: Read Bastiat

If Obama had read Bastiat, not only would he be more informed in matters of economics, he also wouldn't have offered this bit of irony during his State of the Union speech:

What incredible irony that Obama gave the specific example of a glazier as a “beneficiary” of the “stimulus plan.” Bastiat would have gotten a kick out of that!

H/T Lew Rockwell, quoting Jeff Papazian.

Broken Microsoft Windows

Microsoft Windows Vista was broken in many ways. Upgrading to Windows 7, which fixes some of Vista's boneheaded features like UAC, would improve productivity, resulting in more wealth creation for its users (or so I hear; I'm a Mac user).

But to what does the author of this article attribute the new wealth? The (temporary) jobs needed to upgrade millions of computers to Windows 7.

Microsoft Corp. says it won’t be the only one to benefit from sales of its new Windows 7 software. The local economy could see a lift, too.

...Microsoft hired research firm IDC Corp. of Framingham to conduct a study of the ripple effect of the Windows 7 launch. It found that American companies could hire an estimated 25,000 additional workers to cope with the Windows 7 launch, including about 2,500 new jobs in Greater Boston, through the end of 2010.

Jobs are easy to find -- nature creates them for us. It's productivity that matters. Windows 7 should make PC users more productive, which is where the real win comes from.

H/T Wendy McElroy.

Haiti's earthquake; time to celebrate!

Thank goodness Haiti has been leveled because now its people can enjoy a booming economy! Nancy Pelosi, a recent graduate of the school of Broken Window Economics, elaborates:


"I think that this can be an opportunity for a real boom economy in Haiti," she told reporters in the Capitol, drawing from her experience in San Francisco. Haiti "can leap-frog over its past challenges, economically, politically, and demographically in terms of the rich and poor and the rest there, and have a new -- just a new, fresh start," the California Democrat added.


We should all be so lucky as to have our country leveled, think of all the jobs it would create!