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Yes, bubbles are fantastic for the economy. I'm sure the Dutch are marveling at the medical cures ushered in by the tulip bulb mania centuries ago. Or maybe the bubble in beanie babies made us more sensitive to plush toys.

The bubble in housing is outrageous and to say bubbles are good for the economy is like saying debt equals wealth. But we do live in a double-speak environment where in the last 7 years 30% of job growth was contributed by real estate. How trading houses like baseball cards is good for the economy is beyond me. Maybe I'll buy this book coupled with Mr. Lereah's book. I'm sure the rhetoric will be fair and balanced.

The parable of the broken window was created by Frédéric Bastiat in his 1850 essay Ce qu'on voit et ce qu'on ne voit pas (That Which Is Seen and That Which Is Unseen) to illuminate the notion of hidden costs (a.k.a. opportunity costs).

Emphasis mine.

That's not what the broken window fallacy is. The broken window fallacy is one of ignoring opportunity costs.

well...

The fallacy of the onlookers' argument is that they considered the positive benefits of purchasing a new window, but they ignored the hidden costs to the shopkeeper and others. He was forced to spend his money on a new window, and therefore could not have spent it on something else. Perhaps he was going to buy bread, benefitting the baker, who would then have bought shoes, etc., but instead he was forced to buy a window. Instead of a window and bread, he had only a window. Or perhaps he would have bought a new shirt, benefitting the tailor; in that case the glazier's gain was the tailor's loss, and again the shopkeeper has only a window instead of a window and a shirt. The child did not bring any net benefit to the town. Instead, he made the town poorer by the value of one window.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

As best as I can tell (without having read the book which I suspect I never will) the argument being made about bubbles is a pretty good example of a broken window argument. In a bubble investment dollars are speculatively diverted from other opportunties into whatever the bubble is in. Excess infrastructure is created which, down the road, can be turned to good advantage. But that ignores the benefits that might have been realized if the investment dollars hadn't been diverted speculatively at all. Broken window fallacy.

Perhaps I'm wrong and it's more subtle than this.

That's still a broken window argument.

How's that? The broken window fallacy says that you ignore that money previously used to do good was diverted to repair a bad. In this case we are talking about money diverted from a bad to do a good. It's an un-broken window argument, if you like.

Just to be clear I'm not sure I agree with the statement, I'm just throwing it out there as a possibility.

Yeah. The problem is those stories are just boring repeats of the same old crap. The NFL draft has been the most interesting thing lately!

The major Sunni block of the Iraqi government did just strongly threaten pulling out altogether. That's kind of big news given that the Maliki government already appeared to be on last legs with the loss of Sadr.

http://www.washingtonmonthly.com/archives/individual/2007_05/011220.php

Anyway back on topic:
the bubble idea is interesting. I think the counter argument to the "broken window" charge is that in this case money is being diverted from things that aren't important to build infrastructure that is critical but too costly to normally invest in. Of course not every bubble is going to lay the foundation for later important developments as the author seems to acknowledge.

Maybe we need a "liberal" bubble. They win the presidency in '08 and retain congress, subsequently raising taxes. The economy goes to crap, receipts dwindle, deficits rise even though military spending is drastically cut; people starve, terrorists attack, Americans die burning in jet-fueled fires or jumping out of windows.

Wow, talk about a bubble and creating capacity for change!

Yeah. The problem is those stories are just boring repeats of the same old crap. The NFL draft has been the most interesting thing lately!