April 30, 2013

Broken Window Fallacy

Its amazing the things I was taught to believe through out high school and even growing up. That wars help strengthen the economy and have been known to do that throughout America's history. But the fact is that there are only three ways to go about paying for a war. 1. Increase taxes 2. Decrease spending in other areas 3. Increasing the debt. Increasing taxes decreases consumer spending which does not lead to a good economy. By lowering the spending in other areas we eliminate social benefits from those programs and also those individuals will have less money to spend on other items which will shrink the economy. Increasing the debt means in the future we will either have to decrease spending or increase taxes but there are still all those interest payments we have to deal with. None of these three things leads to having a stronger economy.
Also another side effect of war is that your taxes are increased to ultimately destroy things. Your destroying things of the country which you are going to war with and you are also destroying your own property which your tax payers paid for. This cycle nobody wins and none of these activities are strengthening the economy. Why would increased taxes to destroy things strengthen the economy when the consumers could be using that money on other goods which would not be destroyed? Why are so many people lead to believe that the economy is better after war?
I believe the main reason that war is looked at as strengthening the economy is because shortly after wars the economy does start to do better. The reason I believe this is because we are moving away from bad polices. The economic situation is usually strengthened more from moving away from bad policies then from putting into place good policies. The bad policies are increasing taxes, decreasing spending in other areas, and increasing the debt. After all three of these things are eliminated after the war the economy starts to get better.
The broken window fallacy is complete nonsense. Why would a son destroying a window be able to kick start the economy? It doesn't because allow though the glazier is getting money that he wasn't expected and can spend it else where the family with the broken window now has less disposable income. This  leads to the family buying less goods in the economic market.

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