SuperStorm Sandy & the Broken-Window Fallacy

As an economics professor, it is disheartening to hear commentators try to find a silver lining in those masses of ugly clouds that accompanied “SuperStorm Sandy”. They have fallen prey to faulty logic that inspires suggestions that the cost of repairs might reduce unemployment & stimulate the economy was identified as the “broken-window fallacy” by Frédéric Bastiat, a French economist of the 19th Century.

Suppose that it will cost $50 billion to repair the damage from “SuperStorm Sandy”. That means that the disaster will pump $50 billion into various industries or activities relating to repairs, etc,
But while these are the obvious & direct effects of spending, no one would insist that it is a good thing for buildings to burn or to be swept away or for cranes to collapse or for there to be thousands of broken windows.

But economic growth & the NET creation of wealth is NOT a matter of increasing the circulation of money. What has happened with the post-storm spending is redistribution of existing wealth.

As it is, spending $50 billion on repairs means that the same amount will NOT be available to spend elsewhere or on other things. If a storm victim did not replace windowpanes or roofing tiles, the funds would have been spent on dining out or perhaps a new car or some clothing.

Extending Bastiat’s logic also makes it clear that the claims that WWII brought the end of Great Depression are misguided. Despite clear arguments & evidence presented by Bob Higgs, this economic canard is often repeated.

Leave a Reply