By Chuck Rogér
Café Hayek blogger Don Boudreaux recently posted a priceless open letter to University of Maryland professor Peter Morici.
In your guest blog-post yesterday at CNBC you argue that the destruction caused by hurricane Irene will spark a “process of economic renewal [that] can leave communities better off than before” (“Economic Impact of Hurricane Irene“). Central to your argument is your claim that, because of the rebuilding, “the capital stock that emerges will prove more economically useful and productive.”
I hereby offer my services to you, at a modest wage, to destroy your house and your car. Act now, and I’ll throw in at no extra charge destruction of all of your clothing, furniture, computer hardware and software, and large and small household appliances.
Because, I’m sure, almost all of these things that I’ll destroy for you are more than a few days old (and, hence, are hampered by wear and tear), you’ll be obliged to replace them with newer versions that are “more economically useful and productive.” You will, by your own logic, be made richer.
Just send me a note with some times that are good for you for me to come by with sledge hammers and blowtorches. Given the short distance between Fairfax and College Park, I can be at your place pronto.
Oh, as an extra bonus, I promise not to clean up the mess! That way, there’ll be more jobs created for clean-up crews in your neighborhood.
Donald J. Boudreaux
Boudreaux’s letter captures the thrust of nineteenth-century French economist Frédéric Bastiat’s “broken window” fallacy. In an essay titled “What Is Seen and What Is Not Seen,” Bastiat delivered a devastating blow to the notion that net economic benefit can be reaped from an economically destructive event. Using a story of a window which gets broken, Bastiat explains that the glass maker and installer profiting from the situation constitutes an economic benefit only for the glass maker and installer. Money that the owner of the window would have spent productively somewhere else in the economy got spent unproductively to catch the owner up to the point where she was before she incurred an economically destructive event. The net impact on the economy is negative since both the window owner and the merchants that would have benefited from the owner’s spending were negatively impacted. As Bastiat put it:
…if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not 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.
Despite the obvious flaws—pointed out 163 years ago by Bastiat—in viewing disaster as an opportunity for economic boom, economically ignorant pundits (and even some allegedly economically literate professors such as Morici) continue to hold forth on the wonderful “renewal” that comes out of hurricanes and such. On any level, the notion of net good flowing from destruction is absurd. Destroying something that is in use creates no wealth. People who incur devastating losses do not become wealthier because, as Morici contends, wiped-out things get replaced with shinier things. This is all nonsense.
Ask the still-relocated hundred-thousand-plus citizens of my birthplace of New Orleans—whose neighborhoods lie barren six years after Hurricane Katrina—if they feel “renewed.” That supposedly smart people would continue to spew broken-window fallacy poppycock is dismaying. Broken-window fallacy garbage is indicative of the reflexive intellectual laziness that pervades our pundit class.