Saturday, April 9, 2011

BBC on Japan and the Broken Window Falacy

Steve Fritzinger of the BBC agrees with me about the fallacious notion that Japan's natural  and nuclear disaster will result in economic expansion in Japan. In his outstanding commentary on Business Daily Fritzinger gets it right as he cites Frederic Bastiat's explanation of the broken window fallacy. He makes the following insights:

  • Larry Summers' claim that spending on rebuilding will boost the economy is akin to the claim that a family can improve their economic situation by burning down their house.
  • It is a big mistake to equate GDP with economic wealth.
  • Krugman's hope that such spending could get Japan out of an alleged liquidity trap is crazy.
You can listen to the entire program by clicking here. The commentary begins at 12:17 in the program.

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