The Earthquake Wasn’t Good for the Economy. Hurricane Irene Won’t Be, Either.
August 25, 2011
It’s apparently a good time for disasters. Recently, an earthquake hit near Washington, D.C., and Hurricane Irene is apparently moving north toward the densely-populated Mid-Atlantic and New England coasts. Let’s try to nip one piece of rhetoric in the bud: the earthquake was not “good for the economy.” Hurricane Irene will not be “good for the economy.” Natural disasters are never good for the economy. They might create new flows of spending, but those new flows of spending are created in order to replace destroyed wealth.
Here’s a prediction: after Hurricane Irene does its damage, someone will claim that the hurricane was actually a good thing, that it will create spending, create jobs, and move us back toward prosperity. That someone will be wrong for reasons Frederic Bastiat made clear in his classic essay “That Which is Seen, and That Which is Not Seen.”
Here’s Bastiat’s lesson, restated again: suppose a ne’er-do-well child throws a rock through a storekeeper’s window. The storekeeper is obviously unhappy because he has to pay to replace the window, but someone points out that the storekeeper’s new spending will stimulate the economy because after all, he provides income for the glassmaker, who might then spend his new income on a new suit, which provides income for the tailor, who might spend his new income on a meal at a fine restaurant, which creates income and employment for the people who work in the restaurant. What looks like a curse is actually a blessing.
Except that it isn’t. What this ignores is that if he hadn’t had to replace his window, the shopkeeper could have used his money for something else. Perhaps he would have bought a new suit himself, and then somewhere along the line someone else would have purchased new windows. Perhaps he would have saved it and provided capital for a firm that wanted to expand production or for an entrepreneur who would have started a new business. The broken window leaves the world poorer by one window. Wealth has been destroyed.
