Sunday, August 28, 2011

Hurricane Irene Will Stimulate The Economy!

When I read columns by Jeff Jacoby, I often marvel that he's still employed by the Boston Globe. This is one of those columns:
COLUMNISTS MAKE predictions at their peril, but I’ll go out on a limb: If Hurricane Irene turns out to have wrought the havoc some forecasters have predicted, some expert will quickly reassure us that all the destruction is good for the economy. “One of the most reliable results of any natural disaster,’’ remarks economist Russell Roberts, “is the spreading of bad economics.’’ And few fallacies are more enduring than the belief that disasters are really a net benefit to society, since the money spent on recovery stimulates new jobs and construction...

More than 160 years ago, the French political economist Frederic Bastiat skewered such attitudes in a now-famous parable: A boy breaks a shopkeeper’s window, and everyone who sees it deplores the pointless destruction. Then someone insists that the damage is actually for the good: The six francs it will cost the shopkeeper to replace his window will benefit the glazier, who will then have more money to spend on something else. Those six francs will circulate, and the economy will grow.

The fatal flaw in that thinking, Bastiat wrote, is that it concentrates only on “what is seen’’ - the glazier being paid to make a new window. What it ignores is “what is not seen’’ - that the shopkeeper, forced to spend six francs on that, has lost the opportunity to spend them on better shoes, a new book, or some other addition to his standard of living. The glazier may be better off, but the shopkeeper isn’t - and neither is society as a whole.

Broken windows are not economic stimulus. Hurricanes aren’t either. There is no silver lining in useless destruction. Not even if “experts’’ say otherwise.
You know what else isn't economic stimulus? Stimulus packages.


Jean said...

It's similar to the logic that says that ATM machines are job-stealers. In both cases, no one is looking for the progress that can be made when labor or capital is free to do something new.

(Hey, have you read The Rational Optimist?)

Ellen K said...

Actually I believe the liberal media and White House staff were desperate for a presidential moment to counteract the bad press from a particularly ill conceived and poorly timed vacation to Martha's Vinyard. And if you don't think he was talking to well heeled residents and bringing in campaign funds, then you are naive. In the meantime, my vacation consisted of a two day trip to Austin. Please discuss and compare.