In his classic Economics in One Lesson, Henry Hazlitt applies Frederic Bastiat's "broken window" fallacy. Many still haven't learned the lesson, apparently: this article from the Boston Globe argues that this year's earthquakes in China will be good for Chinese economic growth and that disasters can be good for the economy more generally. Disaster-induced institutional change might lead to higher growth over the long run, but in general the proposition flies in the face of one of economics' simplest ideas: destroying resources makes societies poorer, not richer...
What looks like increased economic growth is often redistribution in disguise...
... if destroying resources made us better off, "Beirut should be one of the wealthiest places in the world."
The art of economics consist in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
Government largesse after the 1964 Great Alaska Earthquake was good for some Alaskans, but the resources had to come from the taxpayers. Government largesse after Hurricanes Andrew, Ivan, Dennis, Katrina, and others increased the incomes of some of the recipients of that largesse, but again, the resources had to come from taxpayers.
There is an argument that, by encouraging societies to replace decrepit infrastructure, a disaster can accelerate growth. Yet again, the resources needed to replace that infrastructure must come from somewhere. While we might expect to see robust postdisaster growth along the Gulf Coast and in government-sponsored Gulf Opportunity Zones (GO Zones), it is scarcely clear that this would be economically efficient relative to encouraging people to move elsewhere...
We have an obligation to people, not to places … Given just how much, on a per capita basis, it would take to rebuild New Orleans to its former glory, lots of residents would be much [better off] with $10,000 and a bus ticket to Houston.
Government subsidies mean that there will be more production in the geographic space defined by the GO Zone, but this is not net new production. It is economic activity that would have otherwise taken place elsewhere.
As a fan of innovation and progress, I am somewhat sympathetic to the idea that disasters increase productivity by hastening the switch to more efficient technologies. If the productivity increase from implementing these new technologies were so great, however, private firms would implement them on their own initiative without government prodding...
The back door we installed after our house was robbed is much nicer than our old one. However, the fact that we would have preferred the services rendered by the old door to the services rendered by the new door was revealed in the fact that we had not replaced the old door yet — nor did we have any immediate plans to do so. The new door represents an improvement to our property, but to make that improvement we had to forego the services we otherwise could have enjoyed with the money we spent on the new door. If we hadn't been robbed, we would have the services provided by the old door plus the $400 or so we spent on the new one. Instead, we have only the services provided by the new door, and the old door is nothing but a shattered mess in a landfill somewhere...
In spite of all of this, I am prepared to believe that the long-run consequences of a disaster can be beneficial if they lead to privatization of previously government-owned property as well as institutional reforms more amenable to free markets...
Hazlitt once pointed out that the good ideas in economics have to be relearned every generation, and indeed it seems that a disaster cannot pass without common economic fallacies rearing their ugly heads. The broken-window fallacy seems to reappear every time nature or terrorism causes mayhem and destruction...
Broken Glass Everywhere - Art Carden - Mises Institute
No comments:
Post a Comment