Three stupid responses to Hurricane Sandy -- and every other disaster

This is a variation of what’s known as the “broken window fallacy,” which was formulated by the Frenchman Frederic Bastiat in the early 19th century. The mistake here is that it confuses short-term spending with long-term economic growth. As Reason’s Scott Shackford pointed out, Morici jitterbugs around the broken-window fallacy by talking about a time horizon that is ever-so-slightly longer than the immediate present. Professor Morici says we need to think about what happens when insurance checks get cashed and owners start building their dream homes with fancy new fixtures and hardwood floors and adding powder rooms. But as Shackford notes, though, “the money spent from those insurance claims is hardly growth. It’s money shifted from one part of the economy to the other (or, you know, spending money we don’t even have).”

The ultimate example of broken-window lunacy comes from Nobel Prize-winning economist Paul Krugman. On September 14, 2001, Krugman used his New York Times column to lecture Big Apple residents about the upside of the utter destruction of the World Trade Center and a good chunk of lower Manhattan just a few days earlier: “Now, all of a sudden, we need some new office buildings…the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.”

Given that Frederic Bastiat’s That Which is Seen, and That Which is Not Seen, which includes the broken-window bit, has been available in English for over a century, there’s really no good excuse for this sort of repetition disorder.

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