Still More Broken Window Economics

Here is a simple explanation of the Keynesian view of “broken window” stimulus.  It makes perfect sense and I agree completely with it (although there is an important distinction between the “economic activity” of a society and the wealth of a society).  But this argument (as all similar arguments I have heard) leave a gigantic question on the table that nobody seems to be talking about.  Why are there so many unemployed subsistence farmers?   In fact, this difficulty is so pervasive that it is inherent in the setup of this example.  After all, a subsistence farmer does not need the wealthy loaner to have work, they work for their own subsistence.  But let’s ignore the reality that a man always has himself (or each other) as the employer of last resort and assume that they do need the rich guy in order to have anything to do.  Maybe he owns all the land and resources that could be used to produce the conveniences and necessities of life.

In this scenario, the peasants represent a resource.  They could be producing things of value to themselves and the rich guy.  Knowing this, why would the rich guy allow them to be idle and starving to death?  By assumption this guy owns land or resources that they could work in order to produce something.  Presumably they would be willing to work on his land to produce something if they got to keep some of it.  Presumably they would be willing to work for less than the full amount that they could produce using his land and/or other resources.  And presumably he would be willing to let them work his land in return for some portion of their produce rather than let the resources (land and labor) go to waste right?  Or is that the rub?  See, this premise seems to assume that the rich guy is completely satiated, that he has no desire for any more stuff.  And not only does he have no desire for any other stuff but he would rather not have any other stuff and he prefers to watch all the peasants starve rather than make any use of his wealth because if he were satiated, he could still let them work and keep all of their produce.  This would make him no worse off, unless of course he just likes to see them suffer.  In this case a hurricane is only a device that undoes the satiation of the rich guy and allows the economy to work again.

So once again we have a model that begins by implicitly assuming there is no scarcity, at least for the rich guy.  Or could there be another reason that there are so many people/resources lying around going unused despite their obvious productive capabilities?  What might account for that?  What if there were a minimum wage that were higher than what they could produce?  Or a union that had the ability to keep them from working for such a low wage?  Or what if the rich guy had to pay taxes and social security and unemployment and medicare and pension and workers comp and liability insurance and hire a lawyer to help him comply with all relevent regulations every time he wanted to hire a peasant?   That would probably have some effect right?  But all that isn’t even the main reason.  The main reason is much more unspeakable than that.