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Thursday, November 01, 2012

And It Seems Like Total Destruction's the Only Solution

Yes, the newspapers were right: the breaking of windows was general all over Ireland. They were breaking on every part of the dark central plain, on the treeless hills, breaking softly upon the Bog of Allen and, farther westward, softly breaking into the dark mutinous Shannon waves. They were breaking, too, upon every part of the lonely churchyard on the hill where Michael Furey lay buried. Shards of glass lay thickly drifted on the crooked crosses and headstones, on the spears of the little gate, on the barren thorns. His soul swooned slowly as he heard the windows breaking faintly through the universe and faintly breaking, like the descent of their last end, upon all the living and the dead.

 All right, enough of that now! No more literary parodies today! (See the last paragraph of the link just offered.) On to business:

Summing up my views on disasters:

1) When we look at history, we see disasters have sometimes been a) the downfall of a person, local group, or whole culture (Napoleon's invasion of Russia, the explosion of Vesuvius, the fall of Minoan civilization) and sometimes b) spurred a person, local group or whole culture on to greater achievements (Churchill after Gallipoli, Noto after the earthquake of 1693, or Rome after the sack by the Celts.) If there is any good argument as to why this mixed outcome should not be seen in economic affairs, I have never heard it.

2) Sometimes, even in the positive cases, a) all that we see is a remarkable degree of recovery from the bad fortune, e.g., "After losing the Peloponnesian War, Athens remarkably managed to regain much of its empire in the following decades, although it never again reached its former power." In exceptional others b) we judge the person was in the end actually the better for the "misfortune": "If Johhny Weismuller had not been sickly as a child, he never would have become an Olympic champion swimmer." Again, why this would not apply to economics is beyond me: Sometimes, people will respond to a disaster in a way that increases real GDP growth, at least for a time. There is no reason why, in exceptional cases, that increase could not continue long enough that they actually become wealthier than they would have without the disaster. Of course, they would have been even wealthier absent the disaster, given the same "rallying together" and hard work. But absent the disaster, those were not on the horizon as possibilities.

3) None of the above argues for deliberately inflicting disasters on ourselves or others. On a purely utilitarian basis, once we inflict a disaster on some target, we firstly don't know if we will get 1a or 1b. Even if we get 1b, we still don't know if we will get 2a or 2b. Only in the very rare case of 2b would total utility be raised by a deliberately produced disaster.

4) Most economists who write a "There is a silver lining" op-ed are really doing no more than is a preacher who tries to raise the spirits of his flock after a disaster: if we all pull together, we can come out of this even stronger! Really, must those croaking "broken window fallacy" appear, like an army of grim spring peepers after the first thaw, every time an economist tries to be not entirely dismal?

17 comments:

  1. I agree with your points one through three, but not point four. When economists talk about how a natural disaster could be good for an economy, they have a different mechanism in mind (certainly when Krugman talks about the good effects of an alien invasion, he isn't thinking of an increase in team spirit).

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    1. I don't know, BA: Think of Keynes's emphasis on animal spirits.

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  2. Also, sometimes economists are simply answering a specific questions in the terms in which it was posed to them. If someone asks an economist, "How will the disaster and its aftermath affect GDP for the next two quarters?" there's every chance they will respond by telling you how the disaster and its aftermath will affect GDP for the next two quarters. The terms "GDP"; "two" and "quarter" are robustly defined. Furthermore, there is a historical record of previous disasters to draw on. We don't even have to get into divining motives, unless, "Why do you think these guys* answered a question put to them by a reporter?" is promisingly deep.

    *"These guys" here being the two economists quoted in the WSJ blog entry linked in Bob Murphy's AmConMag piece.

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  3. 'Sweet are the uses of adversity', a pretty smart guy once said.

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  4. All of what you say is true. However, if the message you actually *convey* to your audience is "Bad stuff has a positive value *on average*", then you have horribly, horribly failed. And this is exactly how most such pleas work.

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    1. Sometimes "your audience" is a bunch of nincompoops. Or charlatans. In that case, no, you haven't horribly, horribly failed.

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    2. Jim, if your audience (predictably) doesn't immediately discern the correct, subtle point that Gene_Callahan had to break into a flow chart, that makes *you* the charlatan, for promoting such misleading ideas about the nature of destruction.

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    3. Not to put words into Gene's mouth, but I infer that he broke it into a "flow chart" (really a numbered list, right?) for the sake of nincompoops and charlatans.

      If there were a way to structure it, I'd be willing to bet that to this very moment, you never clicked through the original Murphy piece in AmConMag to the WSJ blog entry he was criticizing and read what was actually written there. The actual text simply does not support Murphy's claims about what was being argued.

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    4. I didn't just read the article; I gave Bob (a version of) the micro analogy he uses in it. And believe it or not, a numbered list can be equivalent to a flow chart.

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  5. Correction: I don't agree with 4), or at least think economists would strongly object to that characterization of their writings. ("What? No, I'm not just yammering about how we need to pull together and whatnot!")

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    1. Yeah, Silas, I probably over-reached with four. But at least *sometimes* that is what they are on about.

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  6. So, you believe (I think) that "silver lining" economists are saying, in the aftermath of a disaster, that it constitutes some sort of social trial which can strengthen us. In that case, however, they're not acting as economists, which weakens your argument. I don't think it's unreasonable to assume that when people identified as professional economists speak publicly of benefits, they're talking about economic benefits unless explicitly stated otherwise. It seems far more likely that they really are advancing some version of the broken window fallacy, which would make your point moot.

    Setting that aside, however...either is a terrible thing to say to people in the immediate aftermath of a disaster. Sometimes, things don't have silver linings, or at least not ones large enough to compensate for what was lost. Sometimes, things that don't kill you still make you weaker than you were before. Given your stated position here, when a relative of yours dies, I presume you wouldn't object to people who come up to you at the funeral and say that:

    1) This is just a spiritual trial that will strengthen you; and/or
    2) Hey, without dead people, morticians wouldn't get any business, so this keeps the economy moving.

    The first would be analogous to what you seem to claim these "silver lining" economists are saying. The second is probably closer to what they're actually saying. Now me, I'd be tempted to throw either type out of the funeral on their ear. But I suppose that there is a certain type of person who can be comforted, in the wake of having lost a loved one or a lifetime of treasures and memories, by the thought that their loss can be a catalyst for a stronger social fabric. Especially one that keeps that money circulating.

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  7. "that it constitutes some sort of social trial which can strengthen us."

    Economically.

    "In that case, however, they're not acting as economists"

    Oops.

    "either is a terrible thing to say to people in the immediate aftermath of a disaster."

    Right. Letting people know there is some hope is just awful. How could anyone be so messed up?

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    1. If they do indeed mean to say that Sandy is something which can strengthen us economically, then they are -- of course -- acting as economists. They're just bad ones. I tried to give a more charitable reading...one where they were saying that the strength or fortitude or whatever gained by living through a disaster outweighed the obvious economic debits. But perhaps that was too sophisticated a point for you to follow.

      In any case...given your sentiments, Gene, I trust you won't mind if I come over to your house and mess up everything you own. It'll strengthen you, you know. Economically. And it'll help enrich all the people you'l have to contact to replace your stuff. (I'm assuming you wouldn't dare ask me to replace it. After all, I'm just making you stronger.)

      "Letting people know there is some hope is just awful."

      When the hope is a false one, you bet your credentials it is. Ask the people on Staten Island right now how much stronger they feel. Ask them how much closer they feel to each other, and to their fellow man who isn't helping them very quickly.

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    2. Well, it's certainly messed up to talk like a preacher under the pretense of giving your profession's understanding of sound economics, sure.

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    3. "In any case...given your sentiments, Gene, I trust you won't mind if I come over to your house and mess up everything you own."

      Well, Mason, I had two posts explaining why this "comeback" is moronic. Since you ignored both of those and offered it anyway, I'd guess you are a...

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    4. Silas, Mises spent about a quarter of Human Action talking like a preacher!

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