The Broken Window Fallacy and Wind

tEconomist refutes Northam Job Claims

The high cost of energy from wind kills 2 jobs for every one created.

They just keep breaking windows

55 thoughts on “The Broken Window Fallacy and Wind

  1. @Tabor

    You have somewhat over generalized the opinion expressed by this individual about this particular set of circumstances. But not matter. Expected.

    But the overall picture is clear – If wind energy is more expensive than fossil fuel energy as you like to claim, where does that extra cost come from? It is not the wind. That is free. Answer : Those extra costs come from extra work done by people. You cannot have it both ways. If wind energy reduces employment, then it is cheaper than fossil fuel energy. If it is more expensive, then it creates work. Pick one. You don’t get both.

    Liked by 1 person

    1. The capital cost of wind power is enormous, Few of the components are made here. But they will be paid for in higher utility rates here. Those higher utility rates will drive away other industry, costing jobs.

      But it still comes down to the basic principle. Wind power is an uneconomic choice, There are much cheaper choices, and every extra dime we spend on wind electricity which is no different from nuclear or natural gas electricity is subtracted from the local economy.

      The only people who benefit economically from wind power are the foreign manufacturers and, of course, the cronies who make money on carbon trading.

      Forcing uneconomic choices on the marketplace never has a net benefit.

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      1. @Tabor

        I will not argue that wind power is cheaper than fossil fuel. In the short term it clearly is more expensive and capitalism does not care much about the long term. That is why the hand of government is needed to steer the market in sustainable ways. Fossil fuels are not sustainable.

        However, I was not out to rehash this disagreement. The point I was making was that you cannot claim BOTH that it costs jobs and is more costly. It is more costly because it creates more work to be done by humans than fossil fuel requires. Yeah, I get your theory. Those people working on producing renewable energy could instead be producing widgets while the smoke continues to fill the sky. But here, on the ground, we are not at anywhere near truly full employment so all the widgets anybody might want to buy will also be produced.

        Liked by 1 person

          1. Nor do they disassemble themselves and bury themselves in landfills after their relatively short lives, but those costs are only a small part of the total labor costs, most of which take place someplace else.

            The article was about jobs here, not in China.

            But even if they were built here, they remain a net drag on the economy. The costs may be unseen, but they are no less real.

            Every uneconomic choice forced by government are a net job loss, even if you can’t point to the job never created.

            There are no exceptions to the broken window fallacy.

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        1. No exceptions? Well once ALL the costs of burning fossil fuel are included in the analysis then there may be something to talk about. But the reality now is that the most significant costs – long term damage to the environment – are socialized while the “profits” are privatized.

          Whatever frame of reference you want to talk about your initial claim that 2 jobs are lost for every job created is unsupportable. IMHO.

          Liked by 2 people

      2. “Few of the components are made here.”
        Yeah, kind like solar panels and the latest technology in both wind and solar aren’t being done here either.

        I don’t think you should be allowed to even mention that.

        First, your ilk fights tooth and nail against renewable energy and for oil and gas, and then complain that the technology for renewables is developed elsewhere.

        Liked by 1 person

    2. RE: “If wind energy is more expensive than fossil fuel energy as you like to claim, where does that extra cost come from? It is not the wind. That is free. Answer : Those extra costs come from extra work done by people.”

      Nope. Even if you assume that wind energy production is more labor intensive than fossil fuel energy production, that’s actually a bad thing. For comparison, digging ditches with shovels is more labor intensive than digging ditches with backhoes, but using shovels instead of backhoes would erode the wealth of the ditch-digging industry, making all of us poorer.

      Labor is not a source of wealth.

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      1. If you really want to create more jobs for ditch diggers, take away their shovels and give them spoons. (HT Milton Freidman)

        Prosperity is really the sum of the efficiencies in the economy. Every inefficient choice forced on the marketplace dilutes the overall efficiency and thus prosperity.

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        1. @Tabor

          “Every inefficient choice . . . yadda yadda yadda”

          That is true only in the oversimplified a priori model in your head. The real world is quite a bit more complicated. Is it “efficient” to destroy the environment to accumulate private wealth?

          Liked by 1 person

      2. RE: “Uh, with all due respect that is over-the-top ignorant.”

        Instead of calling me names, why don’t you explain how labor is a source of wealth? Karl Marx famously said that it was, but I have refuted Marx’s argument in detail many times here in the forum. Maybe you have a better one.

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          1. RE: “How is wealth created without labor?”

            There are lots of ways it can happen. A bank loan, for example, creates monetary wealth out of thin air, without labor. Machines, for example, replace labor such that wealth produced by machines is created without labor.

            As for the Nobel prize, economists who argue as I do have already won it. Examples would be Samuelson, Hayek and Friedman.

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          2. @Roberts

            Neither point supports your ignorant claim which, as a reminder was . . . “Labor is not a source of wealth.”

            Bank loans do not create wealth. If you take $50 out of your left hand pocket and put it in your right hand pocket, you are not $50 more wealthy. If you borrow $50 from a bank you are not $50 richer. You now owe the bank $50.

            Machines make labor more productive but they are not found under rocks. Labor is REQUIRED to produce machines, operate them and maintain them.

            It is pretty clear that you overstated your point. You may not believe in the labor theory of value attributed to Marx, but that is very different from your categorical denial that labor produces wealth.

            Liked by 1 person

          3. RE: “You may not believe in the labor theory of value attributed to Marx, but that is very different from your categorical denial that labor produces wealth.”

            Yes, it is very different, but I’m happy to explore either argument if you intend to claim that wealth cannot be produced without labor. I gave you two examples of how it can be.

            Your dismissal of the bank loan example ignores the fact that having loan money to spend really is a case of having money to spend that didn’t exist before. That the loan must be repaid doesn’t change the reality that the loan may be spent, and that the spending money is created out of thin air.

            Similarly, your dismissal of the machine example ignores the fact that machines save labor. But to address your point that someone must labor to produce a machine, I would simply note that not all machines do. A stick used as a lever, for example, need not be produced by human hands.

            But this suggests another example of how wealth may be created without labor. That would be the classic example of Robinson Crusoe who, shipwrecked on a tropical island, found every necessity for life abundantly provided by nature.

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          4. @Roberts

            “I gave you two examples of how it can be.”

            We have just got to wonder about you when you simply repeat utter nonsense and think you are proving something.

            Borrowing money from a bank does not create wealth. Sure, you can spend borrowed money on something that somebody’s LABOR created but you still have to pay it back.

            Machines still are not found under rocks. The things you might find – like a stick – do not have any power to create wealth unless somebody LABORS with that stick to produce something of value. Sure a machine produced by someone’s LABOR can make your LABOR more productive, but still LABOR is required to produce wealth. Machines do not make themselves. Even going in search of a useful stick is a form of LABOR.

            As for Robinson Crusoe – that his LABOR at gathering the necessities of life is not too difficult does not mean that there is no LABOR involved. Apples do not magically transport themselves to his larder nor do fish jump out of the sea onto his dinner table.

            Liked by 1 person

          5. RE: “We have just got to wonder about you when you simply repeat utter nonsense and think you are proving something.”

            The sad part is you fail to grasp simple concepts, even when they are repeated in a manner meant to clarify them.

            By your reasoning, merely breathing is a source of wealth because breath requires labor. I’m even more fascinated by your accounting for loan money. In your world I suppose loan repayment removes an equivalent amount of currency from circulation, or causes any assets purchased on credit to evaporate.

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          6. @Roberts

            Frankly, your stubborn ignorance and apparent inability to learn are amazing.

            There ARE two simple concepts being discussed here and both are apparently beyond your ability.

            1. Borrowing money from a bank does not create wealth. It moves the money from the bank to your pocket. You can use that money to create wealth if you choose. But that involves LABOR either yours or the people you hire.
            2. Machines do not appear from the ether by magic. Those wealth producing machines are built by LABOR and they are operated and maintained by people providing LABOR.

            I think stubborn is the right word. You started with utter nonsense (“Labor is not a source of wealth”) and are too stubborn to simply admit it.

            Liked by 1 person

          7. @Muephy

            I have learned over the years that you are incapable of suppressing your urge to claim superiority, but it is always remarkable to see you demonstrate the compulsion simultaneously with demonstrating ignorance and lack of mental agility.

            1. You are obviously ignorant that virtually all money today is created by bank loans. It is true that a bank loan (a credit) is offset by the deposit of funds in the borrower’s spending account (a liability), but it is not true that the credits and debits ultimately resolve and cancel one another in a way that evaporates the money so created in the aggregate of such transactions. For example, a bank loan may be used to build a house. Once built, the house is an asset that doesn’t disappear as the result of repaying the loan. It may, in fact may be used as collateral for subsequent loans, meaning the creation of more new money. There is also the fact that physical currency (a small fraction of all the money which bank lending creates) is never destroyed, once released into the economy. It may wear out, but even then it is replaced to continue in circulation. I suggest you learn how money is created. Here’s a hint: it is not by government.
            2. It doesn’t matter where machines come from. What matters is that they create wealth without human labor. That in fact is their function. To illustrate, suppose it takes 10 units of labor to move a rock from point A to point B, but a machine can move the rock for 1 unit of human labor. Now suppose the machine requires 1 unit of human labor in maintenance for the time it takes to move the rock, plus it took 1 unit of human labor to invent and build the machine, pro-rated for the time used to move the rock. That leaves seven units of human labor saved in moving the rock. Whatever wealth moving the rock from point A to point B represents, the seven units of human labor not used in producing it represent wealth created without labor. That should be easy for you to grasp.

            I so enjoy our conversations. I recommend, however, that instead of assuming you are smart enough to keep up, you ask for clarifications before you make a mistake. I am happy to provide them.

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          8. @Roberts

            Again you show your lack of understanding. Of course, I am very much aware of the role of banks in the creation of money but here is a shocker – such borrowed money is not wealth AND it has zero impact on the money supply until it is spent. And let me point out that money does not build a house – that would be the LABOR of people.

            And your example of moving rocks simply confirms what nonsense you started with. And how little you understand what you are talking about. Let’s say rock at point A is not wealth but rock at point B is wealth. Fine. You say that a machine makes it possible for one person to move the rock instead of 10. And that means the machine is the source of the wealth. BUT does that confirm that the LABOR of that one man was not a source of wealth? It clearly does not. Even in your example you must include labor. And you leave out the labor that was used to produce the machine. In short, LABOR is always required to produce wealth and your initial degradation of it is nonsense.

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          9. And if the rock and point A has the same value as the rock at point B, what is the wealth created by the labor of moving it, or moving it back and forth 100 times?

            Labor, in and of itself, has no value.

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          10. @Tabor

            “Labor itself has not value”

            Not in dispute. The issue is Mr. Roberts’s declaration that . . .

            “Labor is not a source of wealth”

            A statement beyond absurd since there is not even imaginable wealth that was created without it.

            Everything of value is produced directly or indirectly (thinking of robots here) by human labor. Whether it becomes “wealth” or not depends on whether it is consumed or not. A cave woman can labor all day gathering seeds from nature. If she eats those seeds that night, no “wealth” has been produced. Only if she saves some of them for the future to eat or plant can we say that here labor produced wealth.

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      3. OK. let’s think of a common example that demonstrates that the EFFICIENT use of labor combined with capital makes us all “wealthy” but labor in and of its own self does not.

        I have a swimming pool. No big deal, lots of moderately successful suburban and rural families have one.

        It was dug with a backhoe and a dump truck. If it had been done with shovels and wheelbarrows, it might have been too expensive for me to afford because of the increased labor costs. If it were done with teaspoons and buckets, only billionaires could afford a pool.

        So, which world do you want to live in? The one where pools are affordable or the one where only billionaires can have one? Regardless of how much money you have or how many people are employed in earth moving, is not the world where pools are affordable a wealthier one?

        Now, why would you want to force a less efficient form of electric generation on the state?

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          1. As I have written many times, it is sometimes necessary for government to resolve external costs, which are a form of the private exertion of force on the marketplace.

            The problem is that when it does so, cronies rush to use that government intervention in the market to enrich themselves.

            There are external costs to the use of fossil fuels, but they have been greatly exaggerated for political and crony motives, and in any case, there is no economic justification for moving from coal to wind rather than coal to nuclear.

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          2. @Tabor

            So, the answer is “No, it is not ‘efficient’ to destroy the environment to accumulate private wealth.”

            Small steps.

            As a matter of historical fact there has been an explosion of private wealth since the beginning of the industrial revolution. Until recently it was concentrated in relatively few countries but is now occurring all over the world. During those same centuries the global environment has been severely degraded in countless ways. It is virtually self-evident that much of that expansion of wealth has been because the external costs of building all that private wealth have not been covered. Given that reality your constant harping on, say, Al Gore is pretty lame. Don’t you think?

            By the way, I do not disagree at all that nuclear power generation is a very important part of the solutions that we need. I would also put solar power way above wind energy as another important area for development.

            Liked by 1 person

          3. RE: “There are external costs to the use of fossil fuels, but they have been greatly exaggerated…”

            External costs to the use of wind need to be addresssed directly. One is mentioned in the intro to this thread: wind kills 2 jobs for every one created.

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          4. Considering he quoted his own column, the point he is trying to make is unproven. It does not show how wind kills 2 jobs for every one it creates. It is an opinion based on Libertarian fantasy economic models. With the decreased use of coal for power generation, shifting those workers to the wind industry seems a common sense solution.

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          5. The 2 jobs lost per one created is from a European study of wind power in Spain. I’ll try to find it for you when i get back from taking my grandson to Jujitsu

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  2. It appears Dr. Koch has a different view of job creation. But the story covers that. Just one excerpt:
    “Mercer pointed to a 38-page Virginia Department of Mines, Minerals and Energy report that includes this line: “As the demand for wind energy increases, experts predict that over 14,000 jobs will be created in Virginia in the construction, maintenance, manufacturing and other service-related industries.””

    And while I have a great deal of respect for Dr. Koch, there appears to be a difference of opinion based on two different kinds of looks at the situation. If there is potential for the type of job growth cited in the MME report, it seems to be a good investment. And if Dominion sticks to the statement, “A Dominion spokesman has said the entire $300 million cost of the project will be covered in existing base rates and that Virginia customers will not see any rate increases.”, then it seems like a potential win-win for all.

    Also, Don, the majority of the jobs in wind are European (per the story), not Chinese, and have a better chance of moving here for local production, thus creating more jobs here.

    Liked by 1 person

    1. RE: “If there is potential for the type of job growth cited in the MME report, it seems to be a good investment.”

      Not necessarily. 14,000 wind turbine jobs may sound like a good thing, but it would be a bad thing if Virginia really needs 14,000 farm jobs or 14,000 software jobs.

      RE: “the majority of the jobs in wind are European (per the story), not Chinese, and have a better chance of moving here for local production, thus creating more jobs here.”

      It doesn’t matter. Creating jobs for immigrants to fill is no net benefit, wherever they come from. The reason is that every worker is also a consumer.

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      1. 14,000 Virginia jobs, is 14,000 Virginia jobs, regardless of sector. Just because you downplay the importance of shifting to more sustainable, less environmentally damaging energy sources is no reason to poo-poo this.

        Who said anything about creating jobs for immigrants (in your farm analogy, maybe. Because most Americans don’t WANT to work farms. If they did, there would be no need for migrant workers to head to the Eastern Shore every year.)? Jobs in America are first and foremost J-O-B-S.

        And even if the jobs are filled by immigrants, they, too, pay taxes. Why does it matter who fills the jobs if personal income goes up across the board and allows more people to buy more goods and services and therefore fuel the economy. Which is growing at a whopping 2.1%. Where is that 4-5% growth we were promised?

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      2. RE: “14,000 Virginia jobs, is 14,000 Virginia jobs, regardless of sector.”

        Nope. That’s the broken window fallacy that Dr. Tabor is trying to teach you.

        RE: “Who said anything about creating jobs for immigrants?”

        You did in your words that I quoted.

        RE: “Why does it matter who fills the jobs if personal income goes up across the board and allows more people to buy more goods and services and therefore fuel the economy?”

        There are lots of reasons it matters. Rising incomes that merely match rising expenditures gets nobody anywhere. This again, if the broken window fallacy Dr. Tabor is trying to teach.

        If more economic activity were a good thing all by itself, then we should break all the windows across the nation to generate work for glaziers. Do you agree?

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        1. Then let me clarify what that comment meant. Don indicated that all of the jobs are currently in China. I was pointing out that the article indicated that those jobs are actually in Europe, er the article. I was trying to indicate that those jobs in Europe, if manufacturing were moved here those would be AMERICAN jobs. If you weren’t so obtuse and in need of playing semantic games, plus applying just a touch of common sense, you would have seen the actual end point.

          Unlike you I don’t think people are dumb enough to need explanations of basic things.

          Liked by 1 person

          1. I stand corrected. I thought you meant that Europeans were coming to work in Virginia. But if not, there’s still the problem that more jobs is no good in itself, unless they are jobs we want. And, as stated, rising incomes that merely match rising expenditures gets nobody anywhere.

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        2. So I looked into the broken window fallacy to understand it better.

          I see the point, but I also see, IMHO, that this is just another excuse to not evolve our energy sector AND economy by shifting to renewable energy sources. We used to be an agrarian driven economy. We have evolved considerably. Yes the farm industry is a much smaller part of the economy now. But it does still exist.

          Liked by 1 person

          1. @Adam

            The Broken Window Fallacy is one of those ideas that seems truthy but there are plenty of problems with it in the context of the real world.

            One of those problems is evidenced in this discussion. Building wind turbines is NOT the equivalent of repairing deliberately broken windows. And yet, those who cite it always fail to make that important distinction. Repairing broken windows gets us back to where we started. Building wind turbine adds something new.

            Secondly, the whole model is based on a completely full employment assumption. That is hardly ever the case. For the idle worker the choice is not between building wind turbines or building something else of value (the “unseen”). It is between building wind turbines or remaining unemployed.

            Third this parable is almost always directed against things that the government intends to spend money on but what these Libertarians ignore that the same “analysis” applies to every economic decision made by everybody. If Toyota builds a plant and employs workers those workers will not be making something else – the “unseen.” So, the loss of that “unseen” is part of the cost of the new plant. If government spending on something the community wants is bad because of this analysis so is ANY capital spending by anybody.

            Liked by 1 person

          2. RE: “The Broken Window Fallacy is one of those ideas that seems truthy but there are plenty of problems with it in the context of the real world.”

            Your analysis doesn’t resolve the fallacy. For one thing, wind turbines don’t add something new, as you suggest. They are, at best, a substitute for other power generation assets that happen to be less expensive. This higher cost is the unseen value that corresponds to the lost value of the broken window.

            Secondly, the model doesn’t require a full employment assumption. Assuming wind power eliminates two jobs for each job it creates, it will do so regardless of the unemployment rate. Same if the net job loss is only 1/2 or 1/4 quarter of a job.

            Third, the parable is valid, or not, independently of how it is used. It happens to be particularly useful in evaluating government spending for illustrating that “unseen” factors must be taken into account. This can be hard to do with government spending, because people like to imagine that taxpayer money grows on trees. The “unseen” in that case is the fact that money collected as taxes is money that doesn’t get spent as it would otherwise have been. This corresponds to the condition of the baker who spends his earnings on replacing a broken window instead of on ingredients for bread-making.

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          3. @Roberts

            Nice try but your defense of the Broken Glass fallacy is kind of weak.

            1. A wind turbine IS something new. Nothing is destroyed when the choice is made to build one. A new coal plant versus a new wind turbine is a decision based on many factors. It depends entirely on your objectives and your time frame. Protecting the environment IS a legitimate objective even if that involves higher costs in the short term.

            2. The Fallacy DOES assume full employment. When you say “Assuming wind power eliminates two jobs for each job it creates” you make it clear you do not understand what you are talking about. Those two people freed up could – under the Broken Glass analysis – busy themselves producing the “unseen” that we are so worried about. Of course, that assumption is wrong. As you have argued elsewhere, wind power uses more labor than fossil fuel. That is why it is more expensive.

            3. Your argument on that tax money being otherwise spent on the “unseen” does not match the reality that there is no shortage of capital and it is demand that decides what gets produced. As a matter of fact a very significant portion of the tax cuts passed out by the GOP to rich people and corporations has gone into non-economic uses like buying government bonds, stock buy-backs, hedge funds and moving money to offshore accounts.

            Liked by 1 person

          4. That you were a CFO of a corporation and don’t know about the Broken Window Fallacy is astounding.

            The broken window is the money lost paying absurdly high electrical costs of “Green Energy” that is now not available for other purchases. The Unseen is what the electrical customer now cannot buy, it has nothing to do with the level of employment. It is the reduction IN DEMAND due to the money spent uneconomically that harms the economy.

            In the original example, the boon to the glazier in replacing the window comes at the expense of the tailor because the shopkeeper cannot now buy the suit he wanted. The title of the essay is “That which is Seen and that which is Unseen.”

            This has been a basic tenet recognized by all schools of economics for 150 years.

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          5. You seem confused:

            1. A wind turbine is something new only in the sense that a replacement window is something new. But a window remains a window. The significance of the wind turbine is that it costs more than the technology it replaces.

            2. If putting people to work is your goal, then “freeing them” via unemployment, as you propose, doesn’t make a lot of sense.

            3. Capital may be theoretically infinite — given the infinity of time — but it is also finite in the sense that the creation of new money depends on the willingness of banks to create it.

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          6. @Tabor

            Don’t be too astounded, Not many people with serious responsibilities in the economic sphere pay much attention to the a priori Austrian economics that you hold so dear because no matter the evidence you don’t have to change your views. In my forty years in corporate accounting and later senior financial management, dealing with banks, shareholders and investors never ONCE did any analysis based on those Austrian theories come into play on any decision or any discussion. Actual, reality-based economics on the other hand were frequently if not daily matters.

            The parable of the broken window may be useful in some contexts but it is a oversimplification of economic reality where one of the factors one MUST consider in decision-making or advocacy is the state of the economy such as the availability of idle resources.

            Your critique of my points is simply a matter of angle of view. And shows your understanding may be somewhat superficial. The crux of the “analysis” is not about demand – that is a mechanism – it is about the “unseen” – things that might have been produced had not labor gone into fixing the broken window.

            You speak of renewable energy as being absurdly expensive. It is just as valid and – given the degradation of the global environment – more accurate to speak of fossil energy as being absurdly cheap.

            Liked by 1 person

          7. @Tabor

            Okay, call it “opportunity costs.” Much better. It does not have the connotations of a word like “fallacy.”

            I never disputed the concept whatever you want to call it. And I never said the parable was wrong, merely over-simplified versus reality. Every economic decision involves “opportunity costs.” The difference between us is that you make statements such as . . .

            “There are no exceptions to the broken window fallacy.”

            as if it were meaningful and now we can see that the truth of it is trivial.

            EVERY economic decision involves opportunity costs and, of course, it is prudent to try to identify what those costs will be. Based on reality. And then make a choice.

            A major problem with your a priori analysis is that the “unseen” is always over-valued even when we don’t even know what it is. More valuable it seems than saving the planet from environmental catastrophe. Your argument is essentially . . .

            “Sure, renewable energy is better for the environment but look at all those “unseens” that we have to give up if we go that way instead of expanding fossil plants. So we shouldn’t do it. There are no exceptions to the broken window fallacy!”

            Not that simple. Not even close.

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  3. If the climate issue was really about the climate, the alarmists would go after China and India — and leave the rest of us alone. As it is, China emits more CO2 than the EU and US combined — and in India, CO2 emissions are growing at a faster rate than any other country on Planet Earth.

    Meanwhile, the US is lowering CO2 emissions. Furthermore, with our advancements in Generation IV nuclear and carbon scrubbing/removal technologies, we have essentially mitigated the issue (if it ever was one).

    Then, of course, we can always eat our way out of this “problem.”
    =-=-=-=-=-=-=
    A Bay Area startup is working to make ‘air meat’ using protein-producing microbes discovered by NASA

    The company, appropriately named Air Protein, uses a technique discovered by NASA to convert carbon dioxide (CO2) into protein the same way plants do.

    https://www.businessinsider.com/air-meat-alternative-startup-nasa-2019-11

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