Hurricanes Do Not Create Wealth
10/30/12
Greetings!
The morning after any disaster is tough. No doubt lives and property were lost last along the East Coast last night, and my heart goes out to those affected. Those of us who live in hurricane-prone areas understand the stress these events place on families.
That said, for me, the morning after a disaster is hard for another reason. It's tough because I know millions of people woke up this morning to read about how great disasters are for the economy. These claims are made by people who have obviously never heard of Frédéric Bastiat or his Broken Window Fallacy. If they did, they would know that property destruction never creates wealth.
https://www.youtube.com/watch?v=erJEaFpS9ls&feature=youtu.be
Putting Bastiat's example into today's terms, imagine a gutter fell off your house last night costing you $100 to fix. Sure the gutter repairman is happy to take your money, but you are out $100 - and still only have a gutter. You are in the same position as you were before the storm - and $100 poorer. Furthermore, everyone knows you planned to spend that $100 on toys for the holidays (at least your kids hoped you would), but now all you can do is take your children outside to admire your gutter ... the same gutter you had before the storm. You, your family, and the toy stores are worse off.
This storm is no different, and the stories in the newspapers were predicable. Countless stories proclaim that recovery spending will offset any economic loss, and that we may even see a "stimulus" as a result of Hurricane Sandy.
For example:
"...economists played down the likely long-term effects. The recovery after the storm, they said, could actually pump up growth temporarily in a few sectors, like construction and retail sales, when cleanup begins in earnest in a few days."
~ New York Times [Read the Entire Story]
"But property damage will be repaired, and lost economic output will largely be offset by other increased activity as residents rushed into stores to prepare for the hurricane."
~ USA Today [Read the Entire Story]
"But for the overall economy, damage from the storm will likely be limited. And any economic growth lost to the storm in the short run will likely be restored once reconstruction begins, analysts say. Americans may even spend more before the storm when they stock up on extra food, water and batteries."
~ Fox News/AP [Read the Entire Story]
"But 'if there is any silver lining in all the destruction the storm is expected to cause, it's that such storms tend to provide a boost to the economy in their wake.' ... Namely, a surge in employment in construction and skilled trades and a boost in spending as companies and homeowners replace damaged equipment and household items, according to [consultant firm Challenger, Gray & Christmas Inc.]"
~ Los Angeles Times [Read the Entire Story]
"A lot of the new infrastructure that eventually replaces what Sandy destroys will be 'more modern and productive,' according to economist and business professor Peter Morici of the University of Maryland. ... That minimizes the net impact, he said."
~ The Globe and Mail [Read the Entire Story]
"While the storm, which has been given the moniker Frankenstorm, will boost the demand for survival necessities like batteries and water bottles and created jobs in the post-hurricane reconstruction, the effects will be limited. According to Forbes, because Sandy is a one-time event, restricted to a specific geographic location, the storm will not provide economic stimulus for the whole country."
~ Wall Street Cheat Sheet [Read the Entire Story]
Some even took the opportunity to argue for bigger government and play politics...
"A Big Storm Requires Big Government"
~ New York Times [Read the Entire Story]
The Bastiat Society believes everyone who works in freedom should know how freedom works. However, given the vast amount of economic ignorance that exists in the world today, we need your help. I encourage each and every one of you to take a moment today to write a letter to your local newspaper editor, post a reference to the Broken Window Fallacy on your social media site(s), forward this email to your friends and colleagues, or simply correct someone who claims disasters are good for the economy. Do whatever you can to dispel the myth that destruction creates wealth.
http://archive.constantcontact.com/fs168/1101711723714/archive/1111410834626.html --
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