We pray for those in the path of Hurricane Sandy that God will protect lives and property. It is somewhat heartwarming that people will try to look on the bright side of even tragedies like this, but in that process we should not fall victim to faulty reasoning.
Without fail, in the buildup or wake of storms, disasters, or other destructive events a journalist or analyst will offer the opinion that the economy will benefit from the terrible event because of all the money that will be spent on rebuilding efforts. The storm will necessitate increased spending on lumber, drywall, and contractors which will increase aggregate demand, GDP, and employment, so goes the usual argument. Frederic Bastiat offered his own version of the argument in the mid-nineteenth century as the “broken window fallacy:”
Have you ever been witness to the fury of that solid citizen, James Goodfellow, when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: “It’s an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?”…
Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs’ worth of encouragement to the aforesaid industry, I agree… The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.
It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
Let us next consider industry in general. The window having been broken, the glass industry gets six francs’ worth of encouragement; that is what is seen.
If the window had not been broken, the shoe industry (or some other) would have received six francs’ worth of encouragement; that is what is not seen.
And if we were to take into consideration what is not seen, because it is a negative factor, as well as what is seen, because it is a positive factor, we should understand that there is no benefit to industry in general or to national employment as a whole, whether windows are broken or not broken…
On the first hypothesis, that of the broken window, he spends six francs and has, neither more nor less than before, the enjoyment of one window.
On the second, that in which the accident did not happen, he would have spent six francs for new shoes and would have had the enjoyment of a pair of shoes as well as of a window.
Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window.
From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: “Destruction is not profitable.”
The broken window fallacy can be used to point out flawed thinking after hurricanes, but it also more generally demonstrates the value of looking for both the seen and the unseen effects of particular events. We now recognize the folly in believing that rebuilding from storms is unambiguously good (and, by extension, that the storms themselves are good) because we realize that rebuilding dollars would likely have been spent on other more valuable things than lumber and drywall.
Consider other stimulus plans, whether they bail out financial institutions, car companies, or build roads. That the banks, car companies, and roads benefit is undeniable, but we must also consider the unseen reduction in spending that must accompany these stimulus plans. If the government pays for these plans via taxation, then clearly the banks get bailed out at the expense of taxpayer income, who likely would not voluntarily spend their disposable income on bank bailouts. Even if the government borrows to pay for stimulus spending via bonds in order to avoid increased taxes, the result is higher interest rates today, which crowd out private spending, and higher taxes in the future to pay off bondholders. Again, the unseen effect is to decrease spending in other areas of the economy.
Politicians need to be subject to the broken windows test in the spending proposals they offer: aside from the crystal-clear moral arguments against forced contraception and abortifacient spending resulting from the HHS mandate and the lifting of the Mexico City policy, secularists can recognize the fiscal flaw in believing that the money spent on these seen programs is better than the unseen things that taxpayers would voluntarily purchase instead.
This is not to make light of the clear harm this hurricane is doing to the unfortunate residents of the East Coast. My heart and prayers earnestly go out to them in their plight. But it does not improve matters to assume that obviously bad events have good effects. Storms, like sin, are destructive and should be avoided even if muddle-headed thinking perceives a benefit when there really is none.