If does not increase an economy’s wealth to destroy and then rebuild. Frédéric Bastiat called the belief that it does “the broken window” fallacy. From David Stockman at lewrockwell.com:
If you ever wondered why our monetary central planners and their Wall Street megaphones are so clueless about the on-going deterioration of capitalist prosperity in America, look no farther than this bit of tommyrot from JPMorgan’s chief economist. Therein one Michael Feroli avers that Harvey’s estimated 15 trillion gallon deluge on Houston may appear to be crushing tens of billions of residential, commercial and industrial properties, but not really.
Alas, what finally appears to be real news from CNN is not all that. By the lights of Feroli’s economics, Harvey is a fake disaster that will lead to an increase in GDP!
As a general rule, hurricanes tend to be a short-run depressant and a medium-run boost to economic activity. Sources within the insurance industry as well as J.P. Morgan’s insurance industry research team estimate that the physical damage will be in the $10-$20 billion range…….Total damage, and total rebuilding, should be greater than this amount, as invariably there will be uninsured losses that will be repaired. Even taking this into account, we believe the overall impact on GDP in Q3 and Q4 should be positive but very small, consistent with the historical experience. For this reason, we are not changing our top-line GDP forecast.
We could send him Bastiat’s essay on the “broken window fallacy” and be done with it. After all, $30-50 billion (or even more depending on the final storm phases) of perfectly good capital stock—-drilling rigs, oil and gas platforms, refineries and chemical plants, office buildings, hotels and shopping malls, public roads and utility lines and hundreds of thousands of residences and apartment units—are being destroyed or badly impaired.
That subtracts from societal wealth pure and simple: There is no economic growth or Keynesian goodness to it!
Indeed, if that simple proposition were not true, why leave it to the chance of Mother Nature having one of her episodic hurricane tantrums? The geniuses on Capitol Hill might as well be encouraged to deploy demolition crews around the country to foster the need for vast rebuilding efforts in their wake, thereby sending the GDP growth stats soaring and Home Depot’s stock to new all-time highs.
To continue reading: 15 Trillion Gallons Of Keynesian Goodness?