Is this is the first spotting of the "broken window" fallacy?
Spotted just now: what might be the first story claiming that the hurricane (actually the flooding caused by bad public infrastructure) will be good for the economy. It is from the New York Times/International Herald Tribuine (dated Sept 1):
But economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding. "Longer term, in the wake of a number of hurricanes there is actually an increase in measured output that even shows up at the national level, because there is a whole bunch of rebuilding activity," said Stephen P.A. Brown, director of energy economics at the Federal Reserve Bank of Dallas.
Comments (14)
I'd also hazard a guess that there'll be plenty of smearing of those who "price-gouge". I also wouldn't be surprised if there's a push for new building code regulations, because after they shoved 100,000 people in a football stadium, it wasn't flood-proof and the dome was partially torn off.
Tom Palmer also blogged about this yesterday, predicting that there'd be broken-window fallacies to come (after all, they came after 9/11 and the tsunami). He also provided the useful link to Bastiat, Frédéric. What Is Seen and What Is Not Seen
Published: August 31, 2005 9:10 AM
CNBC this morning started to wallow down this path. The guest did make some good and accurate points.
Paraphrase:
Short term the destruction is bad and can never be good for the economy.
As the months and years go by during the rebuilding phase - new jobs will be created and it will show up as economic growth.
It can't possibly makeup for the initial destruction however.
Without understanding the broken window fallacy it gave the impression that its really not that bad.
Side note: Extending the broken window theorey, if I have a cracked but usable window ($10 value) and a kid throws a stone through it, so now I replace it ($100 value). The kid still did not create value but his destruction was only $10 and not the $100 replacement value. Kind of obvious but when we relate that back to New Orleans, I wonder if the rebuilding may make New Orleans a first rate city? Alternate use of resources is a big issue here but its a good thought exercise.
Published: August 31, 2005 9:39 AM
Sure, there'll be an "increase in measured output."
That's because there's hardly any "output" in the area right now.
You want to scream at the TV: "care to ask the thousands of families who've lost their homes if they're economically satisfied because, a few months from now, they may have new paint?"
Published: August 31, 2005 11:04 AM
Cafe Hayek had this article yesterday. A carefully reading of the Washington Post story they linked too leads me to conclude that the people making the comments were making somewhat more limited statements than the broken window fallacy. They were just saying that the new development would offset some of the losses.
By my reading, it is still the same fallacy, but in a subtler form. They are treating isolated sectors of the economy as both open and closed systems. They are ignoring the external source of the money that will fund the rebuilding.
Published: August 31, 2005 11:17 AM
Ah, ok. Cafe Hayek has an eye for this issue. It's my fault for having my RSS reader turned off.
Published: August 31, 2005 11:28 AM
Geez, that didn't take long, did it?
Published: August 31, 2005 1:42 PM
No it didn't, I'm actually suprised I didn't hear the broken-window fallacy before Katrina hit Louisiana.
Published: August 31, 2005 1:48 PM
I'd also not be surprised if someone doesn't say something like, "Rebuilding New Orleans must happen, to justify having built and rebuilt it so many times before."
I guess I'm just having revulsion at the idiocy of not walking away from failing projects, such as war.
Published: August 31, 2005 2:01 PM
They're right about the destruction bringing increases in measured output on the national level. That is not to say that the destruction caused by the hurricane is a good thing, but rather to point out that the most common means of measuring national output (GDP) is flawed.
Published: August 31, 2005 3:38 PM
Say a building is scheduled for demolition and an earthquake takes it out before boom day. Is this not a good event for the economy?
Published: August 31, 2005 6:18 PM
Bill--
If the earthquake is so localized that it destroys the building and does not touch anything else, then sure.
But if, as is more likely, the earthquake also kills people, leaves people homeless, and destroys people's property, then it is almost certainly not economically beneficial. And even if it is, to even think of it in those terms is to demonstrate a profoundly diseased sense of good and bad.
Published: August 31, 2005 8:07 PM
It is an increase in GDP. GDP is GROSS domestic product. Net domestic product, it is a decrease.
Published: August 31, 2005 8:57 PM
My daily WSJ email arrived with the headline: "Anarchy in New Orleans." Amazing how people can conflate anarchy and martial law! Or maybe they just mean "chaos" but then it it still interesting that chaos reigns during martial law.
Published: September 1, 2005 4:42 PM
Whatever the details, the recent disasters have accelerated the transfer of assets from the working class to our owners. This isn't going to hurt the "old money," just the "wannabees."
Published: September 2, 2005 9:52 AM