Hurricanes as Stimulus

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.

Photo by The Birkes

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.

Frederic Bastiat, clear economic thinker and therefore virtual unknown to those in modern policy debates

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.

2,459 views

Categories:Featured

21 thoughts on “Hurricanes as Stimulus

  1. Death is not a Joke! says:

    In the midst of death and destruction, you make a blog with a cheap title and insincere wishes? How disgusting!
    Where is your spiritual stimulus? Where is you compassion flowing from your faith?

    1. Joe M says:

      I believe that he established his compassion in the first line of the article: “We pray for those in the path of Hurricane Sandy that God will protect lives and property.”

  2. I pray says:

    I pray for those families headed by gay couples. Their children and their loved ones are at risk during times like this. Our government refuses to recognize their love and commitment and deprives them of the rights and legal protections that we all take for granted. They won’t be an,e to visit their spouses in the hospital. God forbid, one of them dies, their spouses will not get their inheritance or social security benefits, their children may be denied survivors benefits and be ripped from their homes. I pray that god protects the families that we have forsaken. Amen.

    1. Joe M says:

      I doubt anyone reading believes that you pray for anything, let alone families headed by gay couples.

  3. Randall says:

    The real discussion we should be having is whether or not we should rebuild Manhattan. I mean, those people chose to live in a place where this could happen. Look at it – all that flooding just from a Category 1. And now they expect the government to bail them out for their poor choices. Typical inner-city liberal mentality.

    1. This liberal was happy to help rebuild New Orleans. I’m happy to help rebuild New York, and I’m happy to help rebuild those towns along the Mississippi river every 5 years after their floods. That’s what Americans do. We pitch in to help our neighbors and our fellow countrymen, whether they are conservative or liberal!

      1. Randall says:

        Americans (in REAL America) help out their neighbors. Liberal Democrats STEAL from their neighbors and give the money to inner city welfare queens who use the money to buy smokes, liquor, spinning rims, and birth control. Like the ones in New York and New Orleans. And now they’re a little wet… and TaxBongo is going to raise my taxes to soothe their damp little minds. A president Romney wouldn’t let that happen. Just as he would have let GM fail… he would let NYC fail. The way it should be.

        1. Real Americans? says:

          People are suffering tonight and all you can do is insult others? It is time to put aside the childish and to be a man of prayer and compassion.

        2. MARA says:

          Randall may very well be a liberal troll. Either that, or he or she is an adult who forgot to grow up. Either way, it’s best to ignore him since all he or she wants is attention.

      2. Joe M says:

        It certainly is great to help our neighbors. However, the point of the article was that disaster relief does not create a net economic gain.

        That anyone still claims this is a testament to how bad our public education system has become.

    2. Sandy is not liberal says:

      Maybe the real discussion is how to help those in need due to the storm. You can return to your childish insults tomorrow, but take time to grieve for the dead and pray for all who have been harmed.
      Be of good faith now, your petty arguments can wait till others are safe.

    3. Laura says:

      Should we say the same about the people who choose to live in Tornado
      Valley or is rebuilding their homes okay because they share your
      values? You should be disgusted in yourself.

  4. Romobamaney says:

    Forced contraception? Is that like something you’re going to try to keep down the deer population? Good luck getting the deer to stand still to put those things on.

    1. Bambi's Birth Control says:

      What if I don’t want my dough being spent on unmarried does that hook up with any Buck they find.

  5. If you think we should vote on whether gay people should be allowed to marry the person that they love, perhaps you’d be willing to put one of your rights up to a popular vote first.

    1. Joe M says:

      What right that we value do you think is at risk of being voted down?

  6. MARA says:

    Tim, excellent points and well stated. Thank-you.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

STAY CONNECTED


DON'T MISS A THING

Receive our updates via email.