The Anti-Keynesian Two-Step

Conservatives persist on not understanding the point about broken windows:

Clearly, if you destroy valuable items the impact is to reduce wealth.

This, however, entirely misses the point about output, employment, and stimulus. The United States is a richer country than China. We’re also a country that has a higher unemployment rate and a lower growth rate. Over time, economic growth leads to the accumulation of wealth. But having a lot of wealth, having a rapid growth rate, and having full utilization of your existing capacity are all different things. In a country with a lot of unemployed glaziers, breaking windows can increase employment. That doesn’t mean it would make the country wealthier. It means it would increase employment.

The fact that breaking windows would make a society poorer (fewer windows) is precisely why nobody ever proposes stimulating the economy by deliberately smashing windows. But the way the dialogue works is that first a Keynesian observes that fiscal stimulus can increase growth in a depressed economy. Second, as an attempted reductio, a conservative says “if that was true, then you could increase growth by breaking a bunch of windows.” Third, the Keynesian accurately points out that you could, in fact, increase growth by breaking windows. Fourth, the conservative accuses Keynesians of wanting to break windows or believing that window-breaking increases wealth. But nobody ever said that! The point is that we have very good reasons to think smashing windows would be a bad idea—there’s more to life than full employment—and that’s why Keynesians generally want to boost employment by having people do something useful like renovate schools or repair bridges.