Even Nobel laureates forget their economic fundamentals sometimes. Paul Krugman, who knows better, recently fell for the broken window fallacy in a post at his New York Times blog. He argues that the tsunami that hit Japan last year has boosted the economy. An error that basic demands correction; my attempt ran today in The American Spectator:
Imagine for a minute that the tsunami never happened. Japan’s GDP growth would probably be slower; Krugman is almost certainly correct on that. And yet, a tsunami-less Japan would be better off. For one, the survivors wouldn’t have 15,000 holes in their hearts where their families, friends, and neighbors used to be.
As far as the economy goes, all that reconstruction spending would instead go to creating brand new wealth, as opposed to merely replacing what people already had to begin with. It is better to build than to rebuild.
Read the whole thing here.