Tuesday, April 15, 2008

The Simple Things

The most powerful ideas are simple. And when people formulate ideas that are contrary to the simple, inescapable ideas, those complex ideas are wrong. Here is a fallacy that runs contrary to a simple concept.

A young man walked into town and found a shopkeeper grumbling on the sidewalk. The young man asked what was wrong and the shopkeeper replied, "Some idiot put a brick through my window. The glassmaker has come and taken measurements and will charge me $500 to replace it."

The young man said, "You are looking at this all wrong. You will pay the glassmaker $500. The glassmaker will pay the carpenter $500 to build a new cabinet. The carpenter will pay the caterer $500 to help with a party for his wife. This process will keep going. The $500 will probably come back to you, perhaps multiple times. So this is a good thing, not a bad thing."

A simple idea contradicts the young man. It is stupid to break things so that you can fix them.

If the young man is correct, then everyone should break their windows every night. Why stop there? Everyone should break their automobiles and burn down their homes. The economy would never slow down again.

But the young man is stupid. It is stupid to tear something down in order to build it back again. The young man is being too clever by half. Here is the logical flaw in the young man's argument.

The shopkeeper replied to the young man. "I was going to spend that $500 on a new suit for myself and a new dress for my wife. And then the tailor would have spent that money on the carpenter, and the carpenter would pay the caterer, and so on. The only difference is that the first $500 spent would have been a gain for me, not just a restoration of what I originally had. The first spending was wasted, because of the brick thrower. So I should have the man who threw the brick arrested. I should not thank him."

How is this story applicable to reality? There are people in positions of power who believe that if they take $50 billion in taxes and spend it to create jobs that they will boost the economy. They count the $50 billion when it is spent, but not when it is taken. Spending has not increased, it has just been rearranged. These people in power break the window by taking from you, then spend to replace the window. They have not added to economic activity at all.

You might also ask if congress or the president know which window of yours needs replacing. You spend your money more wisely on yourself than someone else could.

If we remember the simple, inescapable logic that contradicts the broken window fallacy, we won't get fooled again.

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