Friday, 31 July 2009

The broken window fallacy, again

In an earlier post I took Craig Glen Eden to task for falling for the Broken Window Fallacy. You may argue that I was a bit unfair since a non-economist could be forgiven for not realising the error. But not so for an economist. But Donald J. Boudreaux has had to point out the error to another economist!

Here is a letter he sent to the Boston Globe:
Adam Smith argued that the wealth of nations is enhanced by labor specialization, capital investment, and peaceful trade. Economist Mark Skidmore argues that wealth is enhanced by destroying things: "When something is destroyed you don't necessarily rebuild the same thing that you had. You might use updated technology, you might do things more efficiently. It bumps you up" ("How disasters help," July 6).

I offer to test Prof. Skidmore's thesis by wrecking his car and burning down his house. If he's correct, he'll surely want to reward me with a handsome payment.
Can I suggest that Boudreaux send Skidmore a copy of Hazlitt's "Economics in One Lesson".

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