It seems like we hear it all the time. After every calamity, someone will opine something like “Well, at least it will create some jobs and help the economy.”
Evidently such folks didn’t pay attention in history class — if they even had a history class when they were in school — because French classical liberal theorist and political economist Claude Frédéric Bastiat belied that notion way back in the 1800s.
Jeff Jacoby talks about the notion in his column today.
Disaster isn’t a stimulus package
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.
Consider the massive earthquake and tsunami that devastated Japan earlier this year – a catastrophe that killed more than 22,000 people, caused the worst nuclear crisis since Chernobyl, and pitched the already sagging Japanese economy into recession. Three days after disaster struck, the Huffington Post published Nathan Gardels’s essay celebrating “The Silver Lining of Japan’s Quake.’’Urging his readers to “look past the devastation,’’ he rejoiced that “Mother Nature has accomplished what fiscal policy and the central bank could not.’’ Now the Japanese would have lots of bridges to build, “entire cities and regions’’ to reconstruct, and information networks to revamp.
“The result of all the new wealth creation,’’ Gardels concluded, “will be money in the pockets of Japanese.’’
Japanese who survived, that is. The tens of thousands who died won’t be pocketing any new wealth. And all the money in the world won’t make whole the countless Japanese whose minds, bodies, or careers were permanently broken by the mayhem. True, trillions of yen will be spent to repair, rebuild, and restore. But equally true is that all those trillions will no longer be available for everything they would otherwise have been spent on. Whatever Japan may gain from the resources committed to reconstruction will never outweigh the value of everything lost through wanton destruction.
Yet the conviction that devastation is really a boon never seems to go out of fashion.
Toward the end of the column, Jeff includes a link to a video explaining Bastiat’s parable. For those who choose not to read the rest of the column, the three minute video is below.
Do you agree or disagree with Jacoby and Bastiat?
And given that “stimulus spending” clearly has not stimulated anything except more national debt, what ideas do you have for reinvigorating our stagnant economy?
The Broken Window Fallacy