Hurricanes benefit the economy and society as a whole?
After every disaster or war, you hear “economists” and pundits talk about how the economic “benefits” of fixing the damages is a silver lining of the resulting destruction. Let’s make this clear: there is no silver lining to Hurricane Sandy. Nor is there a silver lining for past and future hurricanes. Nor is there a silver lining for destruction caused by war. Sure, a some people may benefit from disaster. After a hurricane, construction companies may receive a temporary boost in business. After a viral/bacterial outbreak, physicians and the medical industry in general will see an increase in business. During wartime, the defense industry will see its sales rise through the roof. But do any of these events actually benefit society as a whole? Common sense says NO. Unfortunately, common sense does not exactly permeate within the ranks of “mainstream economics” and the mainstream media.
This idea of Hurricane Sandy having a silver lining is a perfect example of the Broken Window Fallacy. Henry Hazlitt provides an excellent summary of the Broken Window Fallacy in his book Economics in One Lesson:
“A young hoodlum, say, heaves a brick through the window of a
baker’s shop. The shopkeeper runs out furious, but the boy is gone. A
crowd gathers, and begins to stare with quiet satisfaction at the gaping
hole in the window and the shattered glass over the bread and pies.
After a while the crowd feels the need for philosophic reflection. And
several of its members are almost certain to remind each other or the
baker that, after all, the misfortune has its bright side. It will make
business for some glazier. As they begin to think of this they elaborate
upon it. How much does a new plate glass window cost? Fifty dollars?
That will be quite a sum. After all, if windows were never broken,
what would happen to the glass business? Then, of course, the
thing is endless. The glazier will have $50 more to spend with other
merchants, and these in turn will have $50 more to spend with still
other merchants, and so ad infinitum. The smashed window will go on
providing money and employment in ever-widening circles. The logical
conclusion from all this would be, if the crowd drew it, that the little
hoodlum who threw the brick, far from being a public menace, was
a public benefactor.”
Sounds ridiculous doesn’t it? Well that is the type of logic these silver-lining folks are using. Sure, the construction companies may benefit from the rebuilding effort. But what about the billions of dollars in damages suffered by businesses and individuals? While the construction companies may receive hefty profits, these other businesses and individuals who suffer the losses will have that much less resources to pursue their normal economic activities. Thus, the businesses they patronize will lose out as well. In a nutshell, these resources would have to be diverted away from other productive areas of the economy towards rebuilding the losses. That is not an economic boon.