Beware the Broken Window Fallacy: Some Economists Still Think Disasters are Good for the Economy

Foundation for Economic Education ^ | 09/12/2017 | Jeff Jacoby

[PGR88]

Yet there was some positive fallout from the Black Death.

Unless you were one of those killed. Kind of an ultimate "broken window."

Also, the Black Death is an interesting case in that ALL productive assets and capital goods remained in tact. Nothing at all was destroyed - only people.

[FreedomNotSafety]

Looting is has the same NEGATIVE effect as storm damage in some cases it is literally a broken window. I wonder how many FRs think looting is good for the economy?

[Alberta's Child]

Right -- but I think you can make the case that a large disaster that requires extensive rebuilding might end up improving productivity over a large region as old, outdated buildings and equipment are replaced by new, modern ones.

Isn't this one of the big reasons why post-WW2 Europe and Asia saw such phenomenal economic growth?

[sparklite2]

Sort of a medieval neutron bomb, the perfect capitalist weapon. It gets rid of the people but leaves the real estate undamaged.

[sparklite2]

Then what you suppose ended the Depression?

[Alberta's Child]

I would suggest that New Orleans came out much better after Hurricane Katrina no matter how you measure it ... since many of those who were permanently displaced and moved out of the city had negative productivity to begin with.

[AZLiberty]

The bottleneck in our economy is not labor or materials, but initiative and the freedom required to exercise it. Because of exponential technologies -- including fracking -- we live in a world of potential abundance, but we are constrained by policy and other forms of narrow thinking.

If these hurricanes provide excuses to expand freedom of action, we will all be better off in the long run.

[Alberta's Child]

Because of exponential technologies -- including fracking -- we live in a world of potential abundance, but we are constrained by policy and other forms of narrow thinking.

That's a very interesting point. I'd also suggest that we are constrained by the limits of our consumption. In effect, our capacity to produce things far outweighs our ability to consume them. This is why our economy has devolved into a fascist (in the original sense) crony-capitalist system where companies and entire industries can only exist by getting people and businesses to become their customers under threat of government force. Isn't that what ObamaCare is all about, for example?

[WASCWatch]

Disasters clearly benefit some companies and industries, but the overall economy takes a huge hit.

[JimRed]

Anyone anywhere is the U.S. with even marginal construction skills is almost guaranteed a year or more of steady work in Texas or Florida. If they are collecting unemployment or welfare, lay down the law: go where the work is (with our assistance making the contacts and traveling) or leave the rolls.

[Common Sense 101]

If the Depression was ended by WWII mobilization, production and consumption, then why didn't the USA plunge right back into Depression when 12 million soldiers returned home and war spending was reduced by 90%?

Because those 12 million soldiers transitioned back into a workforce that in turn transitioned from wartime activities to economic activities that rebuilt Europe among other things...

[sparklite2]

Your reply should have been directed to PGR88.

[JimRed]

Increased economic activity.

So, I saw your photo array, and in the spirit of fairness (and curiosity) searched "Hurricane Harvey and Irma looters" to specifically look for any white guys. If I'd found any I'd have private FReepmailed you to ask why you left 'em out. Yeah, I'm that kind of PITA- I will call my own to account.

Didn't find a one.

[sparklite2]

our capacity to produce things far outweighs our ability to consume them...

---

...at a price we are willing to pay. That’s why so many consumer goods are imported. Crony-capitalism in the form of minimum wages, burdensome taxes, overbearing regulations, bars to entry, and unions to name a few.

[central_va]

..at a price we are willing to pay.

There is no cost benefit to offshoring of manufacturing for the consumer. The middle men eat up that small profit margin way before the final retail price is applied.

[sparklite2]

If there were no benefits to off-shoring, no one would do it.
There’s a reason our stores are stocked with goods from China. It’s the price. Certainly not the quality.

[riverdawg]

” ... the Black Death is an interesting case in that ALL productive assets and capital goods remained in tact.”

True, unless you think (as I do) that human capital is productive.

[Forgotten Amendments]

The broken glass meme is nonsense. Although some economists say the Depression was not ended by WWII, it seems to me it was. Does broken glass work on a huge scale?

Arrgghhh!

WWII ended UNEMPLOYMENT. Living standards actually declined during the war. The economic activity was not real. It was not producing goods & services.

The depression ended a couple of years after the war when the soldiers came home, FDR was gone, and America got back to work.

[riverdawg]

“I would suggest that New Orleans came out much better after Hurricane Katrina no matter how you measure it ... since many of those who were permanently displaced and moved out of the city had negative productivity to begin with.”

New Orleans might have benefited from the out-migration of unproductive people, but Houston, Baton Rouge, and other destination cities presumably were made worse off. In the aggregate, wealth is destroyed by natural disasters.

[central_va]

There are definitely benefits to corporate bottom lines!