Hurricane Sandy or just another way to stimulate the economy

Like clockwork, we can expect articles to begin popping up to explain how hurricane Sandy’s impact on the economy might not be so bad after all. Why, it might even help stimulate the economy! Lo and behold, here they come…If you don’t know how to counter these arguments, you need to brush up on the “Parable of the broken window.” See below.

“Sandy’s economic hit may be softened by cleanup, rebuild and insurance payments”

The economic hit in the short run will be heavily offset by the boost in spending and hiring that will accompany cleanup and rebuilding efforts in the weeks and months ahead. …the process will inject tens of billions of dollars, money that otherwise would not have been spent, into the regional economy. The increased spending will produce ripple effects for companies supplying the products and services needed to repair the damage, from construction firms to car dealers. (NBC)

 “The Economic Impact of Hurricane Sandy…Not All Bad News”

Disasters can give the ailing construction sector a boost, and unleash smart reinvestment that actually improves stricken areas and the lives of those that survive intact. Ultimately, Americans, as they always seem to do, will emerge stronger in the wake of disaster and rebuild better-making a brighter future in the face of tragedy.  (by Peter Morici, an economist and professor (Good Lord!) at the Smith School of Business, University of Maryland, Yahoo Finance)

Guess what, folks? It’s time to educate your friends and enemies about The Broken Window Fallacy:

…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, 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.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Read the original work by Frederic Bastiat in 1850 here.

P.S. This is related to the silly notion that World War II (and war in general) helped the economy. Tom Woods just posted a video on this. Check it out.