Tuesday, August 20, 2013

The Broken Window Fallacy and WWII

The problems with the libertarian use of the broken window fallacy and WWII are illustrated well by these videos.

The problem with invoking the broken window fallacy in reference to WWII is this: it implies that all military actions and wartime production was literally done only and solely for the purpose of creating jobs and producing something. That is, the war had no purpose in itself and was like the random destruction of a hooligan smashing windows motivated by the belief that his vandalism is justified just because people will be paid for fixing the broken windows.

The libertarians invoking the broken window fallacy here are guilty of the truly bizarre inability to accept that
(1) US war spending was done in order to defeat Nazi, Italian, and Japanese fascism, and defend the democratic world from tyranny, and

(2) that war spending did indeed have the concomitant consequence that US income, employment and output increased, even if it was obviously not the type occurring in peacetime.
These facts do not entail that any Keynesian economist advocates war or natural disaster as a way of stimulating the economy.

The absurd assumption of the libertarian critics is that the wartime economy must have been simply like a peacetime economy in all respects (something which I do not think any Keynesian has claimed), so that the discovery that it was not is then touted as some devastating argument against economic benefits that the US command economy did have. Amongst those benefits was that (1) private sector income was increased and this allowed a substantial reduction in the level of private sector debt (which had been a major drag on the economy since 1929), and (2) the accumulation of both personal and corporate savings during war that could be drawn down after the war ended.

Moreover, the assertion that all war employment did not contribute to private sector growth is unconvincing. First, there is the scientific and technological advancement that occurred via employment, spending and R&D related to the war, such as jet propulsion, new aeronautic technologies, radar technology, nuclear technology, surgical innovations, and so on. These technologies provided lucrative to private sector businesses and still are.

Secondly, many industries were created or strongly developed in new ways in the war years, and proved to be just as important after the war ended, such as the aeronautics, motor vehicle, pharmaceuticals and antibiotics industry. Many of capital goods created in the war years were also useful after the war ended, directly or with some adaptation.

The argument that wage and price controls distorted real GDP figures, while true, has little force given that (1) much of the production in the war was not for the private sector, but the government sector, and (2) that the private sector itself practices massive administration of prices even in peacetime, yet that does not stop people from buying what they want and shunning what they do not want.


  1. I don't disagree with you that if one deems that WW2 was a worth fighting for non-economic reasons then that makes it a bad example of the broken window fallacy.

    By the same token does it not call into question Keynesian claims that the onset of WW2 somehow demonstrates the power of their model ?

    The US govt could today enlist all unemployed resources into an army to fight a war for , say, democracy in China. This would reduce unemployment to 0 and cause GDP to spike.

    Would this be an example of Keynsianism in action or just state co-coercion and extreme militarization ?

    1. Since no Keynesian I am aware of has ever seriously advocated war solely and only for the purposes of reducing unemployment to 0 and causing GDP to spike, your example is ridiculous.

      All that was asserted above is that WWII did have certain positive economics consequences. That is correct.

      But a huge stimulus on public works, social services, and education etc., at any time from 1929 to 1941, would have brought America out of depression and naturally is what Keynesians would have preferred, not war.

      Certain nations like New Zealand in the 1930s did actually achieve the later:


  2. The broken window fallacy has nothing to do with whether a war is justified or for what purpose the war is being fought, those arguments are completely unrelated to the economics and should be left out of economic discussions all together.

    The fact that incomes rose for certain individuals within the economy is the fallacy. Incomes rose because government was forcing the production of goods that were not in demand by the private sector, no ones wealth or standard of living is increased by the production of tanks and bombs to destroy, that is purely destruction of wealth and resources, which ultimately hurts the economy because those resources and wealth are no longer available to be put to use by private sector demand.


    you might be interested in reading through this short chapter from henry hazlitt's "economics in one lesson"

    1. What you seem to be saying is that if the nazis had never existed and we had lived in perfect peaceful bliss, then there would have been no reason to go to war and no reason for the state to use up so many resources, and THUS by force of pure logic is it obviously TRUE that government expenditure during the war was wasteful because in an IMAGINARY ALTERNATE REALITY there was NO NEED for such expenditures.

      You right-wing "libertarian" guys are truly some of the most delusional individuals I have ever come across in my entire life.

  3. The war is the real life counter part To Keynes famous digging example.
    The point is, there were low demand for private gods. The war economy increase the incomes, people got employed, and therefore could start demand private goods.
    The political aspect is that the increase government spending could not pass the Congress without a war.