Friday, August 26, 2011

Is It Better If It's Worse?

"People on Twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage."

Do you think we could get an economic boost from severe hurricane damage?  If you do, you don't understand where wealth comes from - which is from the human capacity to use time to transform lesser valued stuff into stuff valued more highly in the marketplace. 

But if you did believe in what is known as the Broken Window Fallacy, you would not be alone.

"Economist" Paul Krugman wrote:
If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months.... There was a "Twilight Zone" episode like this in which scientists fake an alien threat in order to achieve world peace.
http://www.realclearmarkets.com/articles/2011/08/26/earthquake_economics_the_vew_from_the_epicenter.html
As the author says, "he's getting his economics from John Maynard Keynes by way of Rod Serling. Laugh if you like, but on a grimmer note, this is the same pseudo-economist who saw a bright side to the 9/11 attacks because "all of a sudden, we need some new office buildings" and "rebuilding will generate at least some increase in business spending.""

The author describes the circumstance of his earthquake damaged house:
Strangely, we don't have any actual broken windows, just the odd bits of smashed crockery, but we're experiencing the "broken window" phenomenon concretely and first hand. The earthquake will definitely "stimulate" some employment for a local crew of masons, but as in the classic fallacy, it will be at the expense of other, more productive uses for the same money, as we put off planned purchases and renovations. The repairs will probably cost as much as a modest new car—which, come to think of it, is one of the purchases we'll be putting off.  All of which would be just my personal problem, if not for the fact that the Fallacy of the Broken Window is the basic premise on which America's national economic policy is currently built.

The magnificently common sense conclusion:
Outside of a few little towns in Central Virginia, the East Coast quake is insignificant. But it is dwarfed by the vast destruction of wealth caused by taxation, borrowing, and inflation to fund this administration's failed stimulus. The essence of President Obama's economic policy is to go around smashing people's windows (and shattering the value of our dollars), in the hope that he can get the economy moving by stimulating business for the world's glass-makers.

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