Tag Archives: bastiat

Broken Window Fallacy: Hurricane Irene Edition

Huricane Irene largely spared the East coast’s larger cities from the worst of its wrath. It still cut off power to about 4 million people. And it cost 25 lives. But there is a sunny side to the billions of dollars of destruction! Politico’s Josh Boak quotes the University of Maryland’s Peter Morici:

Morici said there could be some economic growth at the end of this year and the beginning of next year, because with the rebuilding, “largely what we’re going to get is a private-sector stimulus package.”

Morici fell for the broken window fallacy; if a kid (or a hurricane) breaks a window, it creates a job for the repairman. He then spends his wages on other things, and the economy gets a boost. Why not break every window in the entire country, then? Think how much wealthier everyone would be if only a hurricane would come along and level the entire nation!

Morici could well be right that Irene could cause a small GDP boost. But that doesn’t mean that America is richer for having endured a natural disaster; hurricanes are not stimulus packages. St. Lawrence University economist Steve Horwitz draws a useful dichotomy that can help us understand what’s going on here:

GDP measures a flow of activity, not a stock of wealth. Destroying things and then rebuilding them might increase economic activity in the area affected (by drawing resources from elsewhere), but leaves us with less wealth than we would have had without the disaster. That is the real meaning of the Broken Window Fallacy.

Irene destroyed billions of dollars of America’s stock of wealth. Getting back to where we were before the hurricane will probably give a boost to GDP. But we aren’t wealthier for it, even if GDP does look better. If nothing had been destroyed, all the time, energy, and materials put into playing catch-up would have been put into making something new.

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New Bastiat Book

Frederic Bastiat, despite having died in 1850, just came out with a new book. The Man and the Statesman: The Correspondence and Articles on Politics, was just published by Liberty Fund. It’s available in hard copy for Liberty Fund’s typical low price, or for free in PDF format.

A majority of the letters and articles in the book have never before been translated into English.

Bastiat has five more books on the way; Liberty Fund is in the process of publishing his collected works in 6 volumes.

Art Carden on the Broken Window Fallacy

Good stuff. If the embedded video doesn’t work, click here.

Tsunamis Are Not Stimulus

Tragedy struck Japan this morning. It will be some time before we know just how many lives the tsunami took, and how much damage was done. But pundits are already saying dumb things.

Larry Summers, who should know better, committed the economists’ cardinal sin this morning: he fell for the broken window fallacy. The sunny side of the destruction is that it will boost the economy. Just think of all the jobs that will be created by the rebuilding process!

Over at the Daily Caller, I gently correct Summers. Natural disasters are bad for the economy. All the rebuilding activity in the next few years will only get Japan back to where it was. If the tsunami had never happened, all that energy could be put to creating new wealth. Disasters are just that: disasters.

Broken Windows, 9/11, and World War II

Ever hear the old canard that war is good for the economy? Or that natural disasters create jobs? Those arguments illustrate one of the oldest fallacies in economics: Bastiat’s broken window fallacy. The video below, by Tom Palmer and his colleagues at the Atlas Economic Research Foundation, explains why in two minutes and change. Worth watching.

Bastiat on the Stimulus Package

Public spending is always a substitute for private spending, and that consequently it may well support one worker in place of another, but adds nothing to the lot of the working class as a whole.”

-Frederic Bastiat, Selected Essays on Political Economy, p. 16 (emphasis in original)