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Lawrence Reed Columnist

Published Thursday, November 08, 2012

Hurricane Sandy was not a stimulus project

It never fails. After every natural disaster (and even after devastating wars), somebody claims that the destruction is actually good news.

Hurricane Sandy was still wreaking havoc last week when John Silvia, chief economist for Wells Fargo, appeared on CNBC to proclaim the rebuilding effort in coming months would boost the economy. When the interviewer noted the reconstruction efforts after Japan’s horrific tsunami produced disappointing economic numbers, Silvia said the situation in the Northeastern U.S. was different because it’s a wealthier area. People, businesses and governments will now spend a lot of money to fix things up, he said, and that’s a plus for the economy.

You’re a better economist than Silvia if you’re asking yourself, “Doesn’t the spending to rebuild come from somewhere, and if we didn’t have to spend to replace stuff, wouldn’t we have that money for other uses?”

Why is it that so many people, including some prominent mainstream economists like Silvia, get sucked in by such utter nonsense? Why do they apparently think that it’s a stimulus when other people’s homes are destroyed but not their own?

It’s hard to imagine survivors of the fire in Queens or the flooding in Atlantic City deriving much solace or consolation from Silvia’s comment.

“I’m so glad my home was flattened because now I have the chance to rebuild it and stimulate the economy” is not a widely held view in the Northeast at the moment, I’m sure.

The “destruction is a blessing” folks are simply not thorough in their thinking. When a window in a home is broken, they see the new business the glassmaker gets but ignore the fact the unfortunate homeowner now can’t buy something else because he has to replace the window.

A French economist, Frederic Bastiat, exploded this “broken window fallacy” 160 years ago, and you can read it his classic essay at http://tinyurl.com/85s3aqa .

Wouldn’t it be great if we lived in a world where destruction was indeed a magical route to economic progress? It’s the one thing that governments do very well and have more experience in than any other group or institution. Blowing things up or tearing them down is a lot easier to accomplish than creating them in the first place – and for some, it can be downright fun as well. We could dispense with toil and sweat and just go on a rampage, knowing that the economy was being boosted in the process. If Mother Nature wouldn’t cooperate by giving us an occasional disaster, we could blow up a few dams and create our own floods.

Hurricane Sandy was an unqualified disaster. Reconstruction spending will shift resources from this to that, from here to there, just to replace what people once had. Production, not destruction, makes an economy grow. Mr. Silvia should ask Brown University, where he earned his economics degree, for a refund.

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(Lawrence W. Reed, a resident of Newnan, is president of the Foundation for Economic Education in Irvington, N. Y., and Atlanta.)

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