Global Economy Bursting?

[Couch Potato]

I see that you subscribe to the "broken window" theory of economics.

The parable of the broken window was introduced by Frédéric Bastiat in his 1850 essay, also known as the broken window fallacy or glazier's fallacy, demonstrates how the law of unintended consequences affects economic activity people typically see as beneficial.

The fallacy of of applying that fallacy to Japan and other major disasters in older areas is the window is simply replaced with another window of the same type and function. Nothing is different from the original, so there is only the loss. The rebuild in Japan will likely result in a more efficient use of the land and improve the long term growth. A Midwest town was wiped out by a tornado two years ago. The rebuilt with modern techniques which reduced the town budget by a couple million dollars a year. Within a few years the savings from the forced rebuild will far exceed the loss from the disaster.

 

[Riick]

^^^

A Midwest town was wiped out by a tornado two years ago. The rebuilt with modern techniques which reduced the town budget by a couple million dollars a year. Within a few years the savings from the forced rebuild will far exceed the loss from the disaster.

Fascinating, Where can I learn more about this ..................miracle

 

[Randolph Kinney]

The fallacy of of applying that fallacy to Japan and other major disasters in older areas is the window is simply replaced with another window of the same type and function. Nothing is different from the original, so there is only the loss. The rebuild in Japan will likely result in a more efficient use of the land and improve the long term growth. A Midwest town was wiped out by a tornado two years ago. The rebuilt with modern techniques which reduced the town budget by a couple million dollars a year. Within a few years the savings from the forced rebuild will far exceed the loss from the disaster.

So ... the moral and theory is ... don't be proactive and do the improvements that make economic sense ... be reactive and wait for an earthquake and tsunami to incentivize the people and government to do what they should have done to maximize utility and productivity. Or tornados and hurricanes, whatever.

Broken windows at its finest. :Eyecrazy:

 

[Couch Potato]

So ... the moral and theory is ... don't be proactive and do the improvements that make economic sense ... be reactive and wait for an earthquake and tsunami to incentivize the people and government to do what they should have done to maximize utility and productivity. Or tornados and hurricanes, whatever.

Broken windows at its finest. :Eyecrazy:

You are ignoring the insurance factor where payments for disasters are made regardless of whether or not it occurs. Broken windows is a worthless oversimplification of reality. It has as much use as studying physics, but pretending there is no friction or wind resistance. It's fine for Freshmen, but not much use in the real world.

 

[Workbox]

OK folks this is the take from my opinion. Some of us are anticipating a gap up tomorrow. The banks are getting significant amounts of money from the FED and the Government Plunger Team and are going to try to hold above 1250. It has happend before on March 16 2011 and we are at the at same area again. It was the same condition, and we can see the banks getting huge amounts of money and they are going to use it to pump up the market up. The big boys on Wall Street want one more dance before they leave the dance. Yet, we are still in critical condition and anything could happen based on the news and they will jump on any good news that they can.

But if History repeats itself we could see a rally soon. The SPX will create a base and then head up to the 50DMA and bounce between the 200DMA and 50DMA until seasonal fall. If they rally up, we will have until the fall to get ready for another great correction.

Again, it is based on noticeable trends and factors that are noted on market charts in which it shows high frequency of manipulation and abuse. We can not control it, but only anticipate it and hopefully position ourselves for some gains or prepare for losses. But to be honest about it, I am gaining and loosing at the same time because of the irrational conditions of it since it is no longer a capitalist system and highly manipulated for Wall Street and basement computers. But things have change to were we can have a correction and hopefully gain from it, but I am going into it with little risk until I see some clear signals then add to it.

I could be wrong on of this, but is mainly pending on the news an how folks react to it. Yet, we do not have much time.............BEANS AND AMMO AND LOVE FOR OUR FELLOW MAN.

 

[Terrel L. Shields]

it shows high frequency of manipulation

As long as the dark market of the hedge funds are opaque to the public and the government allows public pensions to dump unspeakably obscene amounts of cash into such black holes [which you don't know what's in the fund nor can you readily take anything out] then manipulation is the name of the game and the commodity futures trading commission allows this charade to continue, the economy remains in dangerous waters. The CFTC just announced that it will delay implimentation of rules for hedge funds until year's end....

 

[Randolph Kinney]

You are ignoring the insurance factor where payments for disasters are made regardless of whether or not it occurs. Broken windows is a worthless oversimplification of reality. It has as much use as studying physics, but pretending there is no friction or wind resistance. It's fine for Freshmen, but not much use in the real world.

You are ignoring that the federal government steps in and makes people whole for risks that would not have been insurable or the true cost of insurance.

The best example of broken windows economics is New Orleans and hurricane Katrina in 2005. An estimated 80% of New Orleans was under water, up to 20 feet deep in places. Hurricane Katrina caused $75 billion in estimated physical damages, the most costly hurricane in history, but it is estimated that the total economic impact in Louisiana and Mississippi may exceed $150 billion. Before the hurricane, the region supported approximately one million non-farm jobs, with 600,000 of them in New Orleans, but hundreds of thousands of local residents were left unemployed by the hurricane.

New Orleans 2005 population estimate: 454,863
New Orleans 2011 population estimate: 343,839

Not enough of other people's money that would replace all those broken windows and people just moved away.

 

[Couch Potato]

You are ignoring that the federal government steps in and makes people whole for risks that would not have been insurable or the true cost of insurance.

The best example of broken windows economics is New Orleans and hurricane Katrina in 2005. An estimated 80% of New Orleans was under water, up to 20 feet deep in places. Hurricane Katrina caused $75 billion in estimated physical damages, the most costly hurricane in history, but it is estimated that the total economic impact in Louisiana and Mississippi may exceed $150 billion. Before the hurricane, the region supported approximately one million non-farm jobs, with 600,000 of them in New Orleans, but hundreds of thousands of local residents were left unemployed by the hurricane.

New Orleans 2005 population estimate: 454,863
New Orleans 2011 population estimate: 343,839

Not enough of other people's money that would replace all those broken windows and people just moved away.

New Orleans 2000 population estimate: 484,674

Detroit 2000 population estimate: 951,270
Detroit 2005 population estimate: 899,387
Detroit 2011 population estimate: 713,777

Like Detroit, New Orleans was a dump on the decline before Katrina. Huston had a population of 5,273,595 in 2005, but grew to 6,127,645 in 2011. A nice chunk of that growth was people abandoning that filthy dump, New Orleans. Next you will point to the US housing crash happening the year after Katrina, and claim the hurricane caused it. Your using superstitious analysis because it fits what you want to say. That only works in the world of politics when dealing with the moronic masses.

 

[Randolph Kinney]

Detroit is a good example of broken windows economics.

Houston proves the point comparing it with the economies of New Orleans and Detroit.

And, the current administration's view of economics is the same as the broken window economic model. The government through stimulus spending causes more people to spend with merchants, and these in turn will have more money to spend with still other merchants, and so ad infinitum.

According to Nancy Pelosi, unemployment benefits create jobs.

"Unemployment insurance, the economists tell us, return $2 for every $1 that is put out there for unemployment insurance," Speaker Nancy Pelosi said on the House floor.

"It injects demand into the economy, it creates jobs to help reduce the deficit," Pelosi said.

Broken window economics gives the example of a vandal throwing a brick through a shopkeeper's window. The shopkeeper will have to purchase a new window from a glass shop for a sum of money and that money received by the glass shop is spent with other businesses and so on and so forth.

It is the same ripple effect or knock-on effect of incremental spending. Just like Pelosi, you don't look at the source of incremental spending or its cost. You only look at the benefit of the knock-on effect. And that is the fallacy of the broken window economic theory.

 

[Randolph Kinney]

The Keynesian (broken window) argument assumes that consumption spending adds to immediate economic growth while savings do not. By this reasoning, unemployment benefits, food stamps, and low-income tax rebates are among the most effective stimulus policies because of their likelihood to be consumed rather than saved.

Taking this analysis to its logical extreme, Mark Zandi of Economy.com has boiled down the government's influence on America's broad and diverse $14 trillion economy into a simple menu of stimulus policy options. Zandi asserts that for each dollar of new government spending: temporary food stamps adds $1.73 to the economy, extended unemployment benefits adds $1.63, increased infrastructure spending adds $1.59, and aid to state and local governments adds $1.38. Jointly, these figures imply that, in a recession, a typical dollar in new deficit spending expands the economy by roughly $1.50.

In an underperforming economy, government spending adds money to the economy, taxes remove money from the economy, and so the increase in the budget deficit represents net new dollars injected. Therefore, it does not matters how the dollars are spent.

A good example of broken window economics is Japan. Japan responded to a 1990 recession by passing 10 stimulus spending bills over 8 years (building the largest national debt in the industrialized world) yet its economy has remained stagnant.

Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.

Therefore, breaking a window has no benefit to the shopkeeper when he pays for it. The benefit to the shopkeeper comes from someone else that pays for it.