Tuesday, October 30, 2012

You can't make money breaking things

Hurricane/SuperStorm/MegaMess Sandy provides us with another opportunity to educate the journalists of America, most of whom apparently never set foot in an economics class while they were slacking off in j-school. (Full disclosure: I was a journalism school slacker as well, but I always found econ classes edifying.)

Every time there is some large-scale disaster such as Sandy, some knucklehead will sit down at the keyboard and pop off a story about how the rebuilding effort can be good for the economy. I admit the idea has some superficial appeal: People have to buy materials, make repairs, pay workmen to do the jobs, and all this economic activity MUST be good, right?

Wrong, and the idea was disproven way back in the first half of the 19th century by a French economist named Frederic Bastiat, who wrote something called "The Parable of the Broken Window."

In the story, a shopkeeper is angry with his son, who has inadvertently broken a window in the store. "Oh, don't be hard on the boy," a bystander says. "The broken window is good business for the glazier who will replace the window, and the six francs you pay him will be spent on something else. All of us will benefit."

Again, the theory would seem to have some surface appeal. But Bastiat pointed out the the six francs spent to fix the window is only the "seen" economic activity. What is "unseen" are the other effects of the shopkeeper's glass bill. Because he has to pay six francs to the glazier, the shopkeeper now has six FEWER francs to spend on something else. He can't spend those six francs on a new pair of shoes, so the cobbler has lost business. He can't take his family out to eat, so the restaurant owner has lost business, he can't buy a new book, so the bookstore owner has lost business, and so on, and so on.

If the broken window could really make the economy grow, Bastiat said, then wouldn't it be wise to simply break all the windows in the city and REALLY create economic activity? Of course not. Here's the money quote from Bastiat:

"And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not."

Once you look at things from Bastiat's perspective, it's easy to understand. But every time there's a disaster - Hurricane Katrina, 9/11, a major earthquake, whatever - you can count on some lamebrained journalist to jump right in with a story about how the "silver lining" of this tragedy will be increased economic activity.

And where better to look for lamebrained journalism than our own Star Tribune, which jumped right to the head of the line tonight with its Sandy coverage, and a headline that read:

Storm's cost may hit $50B; rebuilding could end up boosting economy

Brilliant. In fact, maybe once a year we should select a major city and just knock the whole thing down. Then we can rebuild it, and the economy will just grow by leaps and bounds! It's magic!

Such is the shallowness of journalism, and I have no doubt that long after I'm gone - maybe in the year 2075 - a huge earthquake will strike and my great-grandchild will read a story headlined "Quake rebuilding may stimulate economy." Some people just can't be taught.

1 comment:

  1. The broken window story is excellent and, sadly, is probably beyond the comprehension of most on the left.

    So here's my point, which has nothing to do with your post:

    Doesn't the "vaunted Obama ground game" so touted in the legacy media sound a lot like the "elite republican guards" used to describe special Iraqi military units? We're going to find out that both were BS.

    Abe Frommen
    Sausage King of Chicago