Returns to Scale in Broken Windows
fantasticanachronism.com
fantasticanachronism.com
Inertia is a bitch, and it congeals around everything that involves people, viciously if there are no counterbalancing forces. If catastrophe can help things get better in the long run it usually just means that the current processes suck and need fixing. Not super surprising, but worth paying attention to.
People free to decide based on a coin toss are much happier because they have the freedom to do so.
Anyway, when something happened that swept the buildings away - not strictly speaking all the people, just some, but all the buildings - a lot of good things happened.
"Broken windows Bastiat" is kind of reductive because houses are depreciating, a house destroys itself without any intervention. There is a slow moving window breaking in every house. It is always declining in value. A house is a way to use land but it's not the thing that's valuable. It is the land that is appreciating. You could call "land getting more valuable" gentrification, but I think that's missing the point.
If you wanted to advocate for a positive intervention in the face of disasters, provide displaced homeowners a temporary place to live so that they can keep their land. People aren't sophisticated, they don't realize the destroyed house on top of their land was actually decreasing the real value of what they had, but they are also desperate, they need to live somewhere. Without such a plan in place ahead of time, all it will take is that Cascadia earthquake to wildly reconfigure home ownership in California, because a ton of people thinking they are sitting on million dollar homes assessed at a tenth of their value will all be selling at the bottom at once, because they will need a place to live. Gentrification has nothing to do with it.
Perhaps there something better to call it. But when Katrina comes and wipes the euphemistic slate clean, the poorer people that used to live in those houses aren't coming back to inhabit the same land, they go elsewhere. And the middle-class people that move to the new properties often leave somewhere behind too. It's possible that in the macro, it's just migration patterns, but in the micro there's been a rise in tax revenue, land value etc. in New Orleans.
It doesn't simmer down to quite such a small volume. The problem is that even if everyone knew what was better for them, they might still not be able to coordinate on getting there.
The phenomenon described in the linked article is mostly about coordination problems. Not so much about decisions that individuals could make.
See https://equilibriabook.com/ for a book length treatment.
That doesn’t sound right — this is more like the collective benefits at the cost of the individual. It’s very likely that those who lived in the now-destroyed areas are worse off than they had been — though their children may now have better prospects.
The same with the window: having energy efficient windows doesn’t cover the damage of the lost window — but it improves the quality of life for people going forward.
I think they key is that the improvements are inefficient to implement, but if it’s inevitable (the broken window is already broken; the fire can’t be stopped; they’re a sunk cost) the improvements suddenly become viable.
That is, the improved option has to significantly superior to the current situation, because it has to be better than the object in question and the cost to replace. Once the window is broken, it simply needs to be better.
Whether total value goes up or down (or stays the same), is an important question.
And, obviously, the winners and losers are not going to be identical. Especially for anything that involves fatalities or injuries.
(If you want them to be as close to identical as possible, there's an interesting discussion to be had about mechanisms to achieve that goal!)
I understand the article to be reporting on some interesting economic papers with counterintuitive results. Of course, those always come with huge caveats, that the article also mentioned.
I don't see any outright arguing for destruction.
See especially the section 'Wait a minute, this is completely insane!'
> If you accept that (and you should), the only question left is whether the benefits actually exceed the costs. Now we're just haggling over the price, as Churchill said.
The author tries to appear neutral, but their preference is obvious for me.
Your point is that not everyone is better off, so destruction is not a pareto improvement. Their point is that on net, value is increased, so in theory the ones who are worse off could be made whole through a wealth transfer, and there'd still be a surplus, a Kaldor-Hicks improvement.
I'm not saying this is necessarily true, but it seems like a major problem with K-H as a concept that I personally don't see discussed (I imagine it is discussed in academic journals somewhere).
They would encourage gentrification, but also tax it (in a sense).
I think this could very easily be demonstrated with the opposite outcome, but I think I just grow increasing tired over time of economic monetary benefit being the judge of positive outcome as an 'average,' rather than wider health and value with a measure of opportunity. I also get a sense of trickle-down economics threaded through this piece.
The piece is steeped in a conventional understanding of economics as eg taught in universities. That might be what you are detecting? Economics is one of those subjects where the most basic, orthodox positions are some of the most controversial in 'polite conversation'.
If your economy has demand side problems then supply side economics will do absolutely nothing.
> If your economy has demand side problems then supply side economics will do absolutely nothing.
Well, if you have both supply side and demand side problems, fixing at least one side is better than nothing?
Are you referring to a specific economy with demand side problems?
> “Years ago, this column challenged anybody to quote any economist outside of an insane asylum who had ever advocated this ‘trickle-down’ theory. Some readers said that somebody said that somebody else had advocated a ‘trickle-down’ policy. But they could never name that somebody else and quote them.”
> Further, Sowell notes: “The ‘trickle-down’ theory cannot be found in even the most voluminous scholarly studies of economic theories — including J.A. Schumpeter’s monumental History of Economic Analysis, more than a thousand pages long and printed in very small type.”
No judgement implied on the economic matters at hand. Just on the matter that 'trickle down economics' is not a position actually held by anyone as far as I can tell.
There was a lot in that package. See https://www.econlib.org/archives/2017/12/much_ado_about.html for an assessment (by a Trump hater..) that does not agree with the 'trickle down economics' accusation.
> 1. Let’s start with the personal income tax reforms. There is some simplification, as many more taxpayers will be able to use the standard deduction. On the other hand, there’s some added complexity in the new deduction for “pass through” businesses. On net I am slightly encouraged by the bill, as I see it as a first step toward eliminating deductions from the tax code. But we still have a long way to go.
> The distributional consequences of the tax cut are not very important. The top rate comes down a bit, but that’s offset by the fact that state and local taxes can no longer be deducted. Some of the tax cuts benefiting lower income people are scheduled to expire, but almost no one thinks that will happen.
> 2. The estate tax exemption was doubled, but this threshold has been rising very rapidly for many decades. It’s a change, but hardly revolutionary. Recall that the House bill called for its elimination.
> 3. The big corporate income tax cut is the single most significant provision. But even President Obama favored a rate cut to 28%. This excellent WSJ article shows that even after the federal corporate tax rate is reduced to 21%, the total corporate tax rate (including state taxes) is in the middle of the pack for developed countries. It was inevitable that the US would eventually move the rate down to meet global competition—hardly a revolutionary change.
The owners of the burnt houses are not the beneficiaries of the growth during rebuilding. Likewise for guilds and institutions.
Economics has never been my strong point. (see my bank account for proof)
- breaking a window for no reason costs money, so it's economically bad
- but actually it generates labour and might be economically good?
- no, that's a fallacy, you've made the room unusable and reduced its economic worth + wasted labour on a useless repair task instead of improving the system.
The rest of the article says that it might not be a fallacy if you break a significant part of the system and not just a window.
Disclaimer: I don't fully understand the rest of the propositions in the article.
The idea is that the real cost of any choice is the value of the other choices you could have made. That is, if you have 100$ and can buy either a farm or a factory with them, the cost of the farm is not 100$, it is the wealth that you could have gained if you had bought the factory instead (over some time horizon). Of course, in many real-world situations this is not a computable value, as the alternatives are far too open-ended, but still it's a useful way to model certain problems.
Microeconomics and macroeconomics aren't the same thing. Just because markets are going up doesn't mean you actually own enough resources to benefit from it.
> The problem with communist revolutions isn't the revolution, it's the communism.
Of course economic systems generally meet some notion of antifragility, at least to the extent that they are distributed. The question is how big of a wound can one inflict before compromising the ability of the system to restore and strengthen itself.
This thinking doesn't seem novel. It's pretty much what drives gentrification and eminent domain. Poor and vulnerable people aren't sufficiently profitable to Gov budgets and shareholders.
In other words, when things are good the way they are, why bother changing?
[0]https://en.m.wikipedia.org/wiki/High-level_equilibrium_trap
At scale, destroying things has larger returns than the costs.