Thursday, February 18, 2010

Wealth Comes From Rising Prices?

In an interview with, 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.