The Fallacy of the Broken Window Fallacy (Or as it is used on Mises)

    I was perusing the interwebs recently when I stumbled across this article on Mises: The Broken-Window Fallacy by Robert P. Murphy. Now I tend to avoid Mises.org and similar sites due to their general dogmatic propaganda but occasionally I like to see what particular mistakes they are peddling. This article struck me as worthy of a response because of how stunning the sleight of hand really is. I ask the reader to read the parable of the broken window either here or in Murphy's article.

     It all  seems reasonable enough until one thinks "wait! What does it mean if the shopkeeper were not going to spend those six francs!" Is there now an economic benefit because there are six francs more being spent than otherwise would be? Well, let us see what Murphy has to say on this matter:

"Specifically, Bastiat assumes that the shopkeeper would have spent his six francs somehow, and that the boy has merely forced him to spend the money on repairing the broken window. It is wrong to view the employment of the glazier as a net gain to the economy, because the shopkeeper (in the absence of the broken window) might have spent that six francs getting his shoes repaired, for example. In that case, the glazier's gain is exactly counterbalanced by the cobbler's loss.
Thus, if we assume that the workers in the community would have been "fully employed" had the boy not broken the window, then it's clear that the boy isn't "creating jobs" or "boosting total income." All he's done is to give more work/income to the glazier, at the expense of work/income for some other people in the community."

What I have underlined says it all really. So, Krugman (who I'm not overly fond of) argues that a destructive act will benefit the economy due to unemployed resources (capital and labour) and Murphy responds by saying that Krugman is wrong if we assume full employment. Did you get that? He assumed the argument away! Krugman's whole point was that there were unemployed resources which could be employed due to disaster and the response is to assume there are no unemployed resources??

Krugman: If and only if A then B.
Murphy: Not A therefore not B.

Did he miss the word 'if'? And if he did has he not seen the unemployment figures? And the cash at hand in major companies? (Apple has more cash at hand than the U.S. government).

Am I missing something here? Let us read on. Murphy moves on to make a reasonable point regarding the decrease in total wealth (which I will return to) and then quotes Krugman. Hurrying past this we find the next reference to idle/unemployed resources:

"One of [the Keynesian's] responses is to claim that the conservative/libertarian critics are ignoring the distinction between wealth and employment, and that they are unwittingly assuming that there is full employment (i.e., that there are no "idle resources")....

At this stage of the argument, I think there are two main answers. In the first place, we have to inquire why there are so many "idle resources" lying around? If it turns out that destructive government and central-bank policies are to blame — and not a sudden unwillingness for people to "spend enough" — then forced expenditures (due to a natural disaster or terrorist attack) won't actually fix the labor market. Mysteriously, the economy will suddenly become "worse than we realized," so that even in light of the new spending, unemployment is still too high. (This is what happened with the Obama stimulus package.) "


 So, now we have moved from assuming that there are no idle resources to assuming that if there are they must be a result of non-market forces. Now he does provide a link for this assertion but I've had my fill of rubbish today and may pick it up some other time.

 Other Points (Some Nitpicking)

For another point which I felt needed mentioning, I refer to this paragraph:

"At this point, one might think that the whole episode is a wash. Sure, the boy's vandalism doesn't help, but how does it hurt things? Is Bastiat implicitly arguing that it's better to give business to the cobbler, rather than the glazier? Where does he get off making that judgment?
 The answer involves the distinction between wealth versus income or employment. Just because "total income," or "total employment," or "total GDP" hasn't been changed by the boy's action — it's just that the composition has been rearranged — nonetheless the hooligan lad has objectively made the community poorer."

 This seems a more reasonable proposition. It is however odd in light of Austrian economics. Notice the phrase "nonetheless the hooligan lad has objectively made the community poorer". Objectively? Given that the Austrian school relies on 'revealed preference' and the subjectivity of utility in its every analysis, I find it odd to see the word objectively sneaked in here. How does the Austrian suppose to measure the utility gained or lost due to this act? Given that their analysis almost entirely relies on this utility or preference having to be 'revealed'. How do we know that the utility of the Glazer or indeed the utility of the new pane to the shopkeeper is lower than that which would have been otherwise? This is even more so the case if we assume that there are unemployed resources. Murphy refers in his article to the disutility of work: "Work is a necessary evil, not an end in itself." and later on at the end of an example where he states  "Sure, Jim caused some physical destruction of wealth, and that is a bad thing; however, let's not lose sight of the upside: the neighbor used more of his labor than would otherwise have been the case"?.  If we do indeed assume that there are no unemployed resources then his argument seems to hold up but if there are unemployed resources then we immediately see that his argument no longer holds. Furthermore, given the massively negative effects of long-term unemployment (this paper for example) this 'unecessary evil' is hardly so . Even though I could go on, I think I will wrap it up here as I have ranted for too long already.