Monday, August 29, 2011
Disaster Isn't a Stimulus Package
Disaster Isn't a Stimulus Package
By Jeff Jacoby
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, it will be only a matter of days before some expert reassures us that all the destruction will actually be 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 economic 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 California intellectual Nathan Gardels's essay celebrating "The Silver Lining of Japan's Quake." Urging his readers to "look past the devastation," he rejoiced that "the need to rebuild a large swath of Japan will create huge opportunities for domestic economic growth" and observed 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 have otherwise 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.
"It seems almost in bad taste to talk about dollars and cents after an act of mass murder," wrote Paul Krugman in The New York Times less than 72 hours after the atrocities of 9/11, but the terrorist attacks could "do some economic good." After all, Manhattan would "need some new office buildings" and "rebuilding will generate at least some increase in business spending."
The same was said of Hurricane Katrina, one of the severest calamities in US history. Barely had the storm subsided when J.P. Morgan economist Anthony Chan was assuring CNN/Money that hurricanes tend to stimulate growth. Granted, New Orleans had been shattered, said Chan, but "plenty of cleanup work and rebuilding will follow. . . . That means over the next 12 months, there will be lots of job creation which is good for the economy."
In 2007, immense wildfires in southern California consumed more than 1,600 homes, burned 500,000 acres, and forced the largest evacuation in state history. A senseless tragedy? No, a blessing! "This will probably be a stimulus," University of San Diego economist Alan Gin told the Los Angeles Times, since "there will be a huge amount of rebuilding . . . financed by insurance payments." It is a "perverse reality," added MarketWatch
More than 160 years ago, the French political economist Frederic Bastiat skewered such attitudes in a now-famous parable:
A boy breaks a shopkeeper's window, and everyone who sees it deplores the pointless destruction. Then someone insists that the damage is actually for the good: The six francs it will cost the shopkeeper to replace his window will benefit the glazier, who will consequently have more money to spend on something else. Those six francs will circulate, and the economy will grow.
The fatal flaw in that thinking, Bastiat wrote, is that it concentrates only on "what is seen" -- the glazier being paid to make a new window. What it ignores is "what is not seen" -- that the shopkeeper, forced to spend six francs repairing damage, has lost the opportunity to spend them on better shoes, a new book, or some other addition to his standard of living. The glazier may be better off, but the shopkeeper isn't -- and neither is society as a whole.
Broken windows aren't economic stimulus. Hurricanes aren't either. There is no silver lining in useless destruction. Not even if "experts" say otherwise.
To read another article by Jeff Jacoby, click here.
Posted by Brett at 12:08 PM