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Monday, December 27, 2004

Hey, it'll just spur growth in South Asia, right?

Not to take lightly the horror of the Sumatran superquake but this seems like a good time to bring up Bastiat's Broken Window Fallacy. Nobody in their right mind would seriously suggest that the quake and tsunami that killed over 25,000 people would be a boon to the local or world economies. On the contrary, it's obvious we're all worse off for it especially in the directly hit areas. Yet, when four hurricanes beat the swamp out of Florida in August and September of this year, some financial analysts were proclaiming these multiple disasters would spur growth in the Florida economy. To be fair, the disasters weren't as bad and few people lost their lives but that only means that the Florida economy will recover to the point it was at before the disasters much faster. It will eventually get back on track but it will be months or years later than it would have been without the storms and that track will be in a different direction than it would have been. Likewise, a broken window doesn't help a neighborhood, it just sets one household back about the price of a pane of glass and the labor to install it. When money is spent to replace something instead of creating something new, it's as good as if you threw it away in the middle of the Indian Ocean.

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