Paul Krugman and the Broken Window Fallacy

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It’s Friday and Paul Krugman has not disappointed from his perch at the New York Times. Today, the Great Nobel Winner has given us a wonderful rendition of the Broken Window Fallacy. The guy is part Silvio Gesell (“print money”) and part, well, Krugman, since he is unmatched in presenting economic fallacies as real economics.

He gives us the following syllogism:

1. Expanded environmental rules will be costly to Americans;
2. “Careful researchers” at the EPA and MIT say that the costs won’t be as high some have predicted;
3. Therefore, new “green investments” will lead the economy in a recovery.

I have included my comments that I have posted at the Times below:Krugman’s article today is one of the best examples I have seen of what Henry Hazlitt (who once wrote editorials for the New York Times) of the “Broken Window Fallacy.” Now, as someone who has written that nearly all economic problems can be solved by “printing money,” I am not surprised to see Krugman engaging in such thinking.

His call for “green investments” is like saying that the way to solve our transportation issues is for us to “invest” in more horses and buggies. Despite the nonsense on the NY Times editorial pages that the earth is going to warm to near-Venus levels if we don’t “do something,” Krugman’s statement that a “green economy” forced upon us by the state will help us because it won’t hurt us as badly as Newt Gingrich says it will is almost hilarious in its mangling of simple logic.

Granted, this is vintage Krugman. It is part ad hominem (attack Newt Gingrich, who at least deserves to be attacked and is hardly a paragon of free market thought), part socialist (the state is so wise it can tell us exactly what we need whenever we need it), and part non sequitur (EPA economists have said that a green economy won’t make us as poor as Newt Gingrich claims so, therefore, “green” investments will make us rich).

So, I always am glad to see the latest brilliance that comes from the Princeton economics department. Let’s see, this is a department that has given us Ben “Throw Money from the Helicopter” Bernanke and now Paul “Print More Money, Print More Money” Krugman. I can’t wait to see the next set of wisdom that comes from Princeton.

Maybe this department will enshrine Silvio Gesell. Oh, wait! Greg Mankiw at Harvard already did it. Yes, the Ivies are now Crank Central!

6:52 am on May 1, 2009