In the Washington Post, Neil Irwin explains how after
hurricane Sandy economic activity will be sluggish for the weeks following
because most of the businesses will be shut down after the devastating
storm. He goes on to ramble about how it
will take months for businesses to re-open and return to their previous
status. I find it interesting though
that he believes the result from this devastation will lead to economic growth
or a positive net from opportunity to rebuild and clear damages. “During the next couple quarters, there will
be an almost perverse boost in overall economic activity, as efforts to clear
damage and rebuild houses and businesses add to the gross domestic
product.” This whole tragedy reminds me
of the fallacy of the broken window as Bastiat explains, and that the silver
lining you (can't) find with hurricane Sandy is purely one seen side of the
cost; it's important we find and question the unseen. We see the cost and benefit of
providing more jobs, but the problem is we don’t see that we are spending money
to rebuild things we already had, and we are now taking money away from the
country to rebuild the city when we could have spent it on something else more
productive or at least something that we didn’t already have. Bastiat explains, “But if, on the other hand,
you come to the conclusion, as is too often the case, that it is a good thing
to break windows (in our case-destroy cities), that it causes money to circulate, and that the encouragement
of industry in general will be the result of it, you will oblige me to call
out, Stop there! Your theory is confined to that which is seen; it takes no
account of that which is not seen.”
Furthermore, Irwan from the Washington Post explains that “there are no
reliable estimates of the financial damage wrought by the storm, but one
pre-storm estimate of $88 billion would imply that rebuilding efforts would add
about two-tenths of a percentage point to GDP growth.” Again this is just fictitious, even though
many economist and people in general use the GDP as a measure of our welfare
they are simply wrong; the GDP fails miserably to accurately measure my overall
happiness and has no way of quantifying my quality of life.
Back to the opportunity Irwin tries to convince us of that
hurricane Sandy will generate jobs, exchange and happiness; he supports this by unfolding,
“The storm depleted some of the nation’s capital stock- houses, stores, and
bridges and other infrastructure were destroyed… The country is, in effect,
poorer by whatever amount the damage comes to but the urgent need to rebuild
will create jobs and spur economic activity, with the bill paid by insurers and
governments.” The whole idea that
depleted housing, stores and business will generate jobs is just crazy, on one
hand yes it does but it also takes away from us spending money in a more
productive way or towards something we didn’t already have. As we said in class, instead of replacing
that broken window we could have spent it on a new pair of shoes for the shop;
same goes for New Jersey/New York, instead of paying people to replace their
houses, stores and business they could have had the government spend money on
things that would bring more enjoyment and prosperity to the states. It’s amazing though that Irwin pursist that
there is a silver lining within this mess, and that there are long term
benefits to rebuilding infrastructures that we already had compared to
investing in new projects and innovations.
Furthermore, “In a 2002 paper published in the journal
Economic Inquiry, Mark Skidmore and Hideki Toya analyzed areas that were
affected by natural disasters around the world. They found that such events can
provide the impetus needed to invest in new and more productive capital.” Yet it again, I don’t completely disagree
with what they are claiming but I do believe that they are not seeing the whole
picture; they see the obvious but are failing to see the not so obvious that I
pointed out earlier. Bastiat helps to
explain this through the broken window, “Let us take a view of industry in
general, as affected by this circumstance. The window being broken, the
glazier’s trade is encouraged to the amount of six francs: this is that which
is seen. If the window had not been
broken, the shoemaker’s trade (or some other) would have been encouraged to the
amount of six francs: this is that which is not seen. And if that which is not seen is taken into
consideration, because it is a negative fact, as well as that which is seen,
because it is a positive fact, it will be understood that neither industry in
general, nor the sum total of national labor, is affected, whether windows are
broken or not.” Ultimately, when people
like Irwin claim that there is a benefit to rebuilding things we previous had
they are only looking at what can be seen and not at what can’t be seen. Irwin sees that this devastation allows
someone to use their labor and make a wage, what he doesn’t see is that the
person who is paying to repair the damages is being urged to use money in this
way instead of something that may be more enjoyable or beneficial to them or
their business. Furthermore, when Irwin
claims that the government pays for these rebuilds I think he is wrong; they may be writing the check or finding the
credit but the government isn’t taking it out of their pockets, they are taking
it from our pockets through taxes, or they are borrowing money from other
countries, printing money (causing inflation) or they are spending future
income for present problems which all have rippled unintended consequences. Bastiat sums it up well, “Whence we arrive at
this unexpected conclusion: Society loses the value of things which are
uselessly destroyed; and we must assent to a maxim which will make the hair of
protectionists stand on end—To break, to spoil, to waste, is not to encourage
national labor; or, more briefly, DESTRUCTION IS NOT PROFIT.” Concluding, Irwin must see the unseen and
reevaluate his beliefs on finding the silver lining within great devastation;
and he must question where New Jersey/ New York would have been without the
hurricane and what the government could have spent the money on if it didn’t
have to rebuild previously owned damaged goods.
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