Posted on 10/21/2024 6:21:34 AM PDT by Diana in Wisconsin
In times of disaster and destruction, a common narrative often emerges that rebuilding efforts will lead to economic growth. The idea that repairing damage and replacing destroyed goods creates jobs that spur consumption and stimulate economic activity is tempting. However, as French economist Frédéric Bastiat explained in his famous “Broken Window Theory,” this reasoning is fundamentally flawed. Rather than generating net economic benefits, destruction diverts resources and wealth that could have been used for more productive purposes, ultimately stifling real economic growth.
Recent events, particularly the devastation caused by Hurricanes Helene and Milton in 2024, provide a clear example of why destruction does not create long-term economic prosperity. Despite the short-term boost in economic activity from rebuilding efforts, the broader economic implications are far more detrimental. In this post, we will delve into Bastiat’s Broken Window Theory, apply it to the aftermath of the hurricanes, and explain why destruction and the need to replace lost goods drag forward future consumption rather than create new economic value. The Broken Window Theory: A Lesson in Opportunity Cost
Frédéric Bastiat introduced the “Broken Window Theory” in his 1850 essay “That Which is Seen, and That Which is Not Seen.” The theory is illustrated by a simple example: A boy throws a rock through a shopkeeper’s window, breaking it. While some may argue that this destruction benefits the economy—after all, the shopkeeper must now pay a glazier to fix the window, creating work—the key insight lies in what is not seen.
Had the shopkeeper not needed to replace the window, he could have spent that money on something else, perhaps new inventory, equipment, or even personal savings. The repair creates no new wealth; it merely replaces what was lost. The shopkeeper’s forced expenditure on the window diverts resources that could have been used to improve his business or save for the future.
Bastiat’s principle extends beyond a broken window to any form of destruction, whether natural or man-made. Destruction leads to the misallocation of resources, pulling future consumption forward and leaving society no wealthier than before. This is a critical point that often gets overlooked in post-disaster economic analysis.
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Analysts’ use of Bastiat’s argument that destruction creates economic prosperity rests on a misunderstanding of wealth creation. True economic growth occurs when new goods and services production increases society’s overall wealth. On the other hand, destruction forces the replacement of existing goods and services, leading to no net increase in wealth.
Think about it this way: if destruction is beneficial to economic prosperity, why not have an annual event where the Government carpet bombs a major city? When viewed in this manner, the illogic of the argument of “creative destruction” becomes evident.
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True growth comes from policies that support increases in productive investments, innovation, and the efficient allocation of resources. As investors, we should hope for those policies. As citizens, those are the policies we should demand.
I don’t get why Belgium was worth defending, considering what they did in The Congo.
Britain might still have their empire if they’d stayed out of it.
Historically the UK has always been nervous about if a major European land power controls the Channel ports - e.g, Belgian ports, etc. When it seceded from the Netherlands after the Congress of Vienna the UK guaranteed its sovereignty to keep the French out.
and there was a leftover German royal (Victoria’s uncle) who needed a job!
Why does Britain care about the Continent, when they had their Empire?
They needed “Brexit” in 1914.
The needed Brex-Stay-Away in 1914!
Furthermore, if the French weren’t encouraging him, Czar Nicky never would have mobilized the Russian Army, which forced the Germans’ hand.
They had that unfortunate experience with the Normans!
Yep!
After ignobly losing the Russo-Japanese War Imperial Russian had no business getting into another war!
Well Nicky paid the price for it. Sad about the rest of the family, though, they didn’t deserve that.
We are limited to considerations of “benefit”, not morals. Economically Germany and America could have cooperated, not matter how repellant.
In the long run of history, the US and Allied victory in WW II made the US and the world more peaceful and prosperous.No doubts about that. A more salient question is cui bono from what has led to America's economic decline?
Great, self-governing nations regard their foundational principles as more important than economics and trade. No matter what, America would not have accepted Nazi Germany’s military predations against France and Britain or been blind to Hitler’s long term plans against the United States.
To win WW II and the Cold War, the United States entered into a series of deals, trade relationships, and international organization that put the US at a disadvantage against the rest of the world. In addition, the Left subverted and damaged America’s traditional domestic policies and institutions. Trump seeks to reverse all that, which is why he is so bitterly opposed.
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