Today we talked about the Broken Window Fallacy. If Rizzo's window breaks it is bad. Destruction is bad.
1. Rizzo did not want the new window. The destruction did not happen at the same moment Rizzo decided that the window needed to be replaced because it was foggy.
2. Rizzo had money and a window. Now he spent the money and only has a window. Also he has no new driveway since he spent the money. Now the driveway people have less money. We shouldn't look at the money - only the resources.
3. Even if the window makers are unemployed and in a recession, it is bad. Creating jobs and taxing people today will only hurt us in the future.
Wars are costly - if we wanted to build a new road in Japan why did we need to bomb Hiroshima? - cheap demolition? No, wars are not worth the death or the waste of resources. WWII did NOT get us out of the Great Depression.
4. Costs are subjective. Costs that influence behavior aren't recognized because we will never know the benefits/costs of doing something else.
5. Marginal Thinking is the reference point that tells values. For example a cup of water vs a cup of diamonds. The water has high value and low cost but the diamonds have low value but high cost. If each was the last of its kind - last water/diamond, what would I want? I would want the water - proving it has higher value.
Marginal cost is the change in cost when making a decision. If I get on a plane that has one seat left - it costs the plane nothing to fly me so why not charge me less to make some profit - the plane's going to fly anyway. But if the plane is full, the plane should charge me the cost of flying a whole plane for me to fly. The cost changes based on the situation.
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