[SEL] OT: Gas Crunch?

[Rob Skinner]

> Actually, other than fuel, that's the prediction of many 
> major economists as well. These things actually positivly 
> impact the economy when they start to rebuild.


What major economists?  Here's what MY 
favorite economist has to say on the subject.

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Walter E. Williams 
November 17, 2004 

Here are a couple of newspaper headlines following Florida's bout with hurricane
disasters: "Storms create lucrative times," St. Petersburg Times (Sept. 30,
2004), and "Economic growth from hurricanes could outweigh costs," USA Today
(Sept. 27, 2004). The writers, Joni James and Barbara Hagenbaugh, might have
been listening to economists like Steve Cochrane, director of regional economics
at Economy.com, a consulting firm in West Chester, Pa., who told USA Today,
"It's a perverse thing ... there's real pain, but from an economic point of
view, it is a plus." 

Why are Florida's hurricanes a "plus"? It's simple. According to St. Petersburg
Times reporter Joni James, "Construction creates thousands of jobs, insurance
provides for billions in consumer purchases, and new facilities built to higher
standards might help offset future storm-related losses." 

This kind of reasoning, often put forth by poorly trained economists, doesn't
even pass a simple smell test. Think about it this way. Using Cochrane's
statement, if "from an economic point of view, it (hurricanes) is a plus," would
the country have been even better off if the entire East Coast shared Florida's
damage and destruction? If it would have been a plus for the East Coast, what
about hurricane destruction for the entire nation east of the Mississippi?
Almost anyone with a speck of brains would recognize that equating economic
growth with destruction is lunacy. 

French economist Frederic Bastiat (1801-1850) wrote a pamphlet "What Is Seen and
What Is Not Seen," in which he says, "There is only one difference between a bad
economist and a good one: The bad economist confines himself to the visible
effect; the good economist takes into account both the effect that can be seen
and those effects that must be foreseen." In the case of Florida's hurricane
disaster, what is seen is the employment associated with rebuilding. What is
unseen is what Floridians would have spent the money on and the benefits
therefrom had there not been hurricane destruction. 

Bastiat wrote a parable about this that has become known as the "Broken Window
Fallacy." A shopkeeper's window is broken by a vandal. A crowd forms,
sympathizing with the man, but pretty soon, the people start to suggest the boy
wasn't guilty of vandalism; instead, he was a public benefactor, creating
economic benefits for everyone in town. After all, fixing the broken window
creates employment for the glazier, who will then buy bread and benefit the
baker, who will then buy shoes and benefit the cobbler, and so forth. 

Those are the seen effects of the broken window. What's unseen is what the
shopkeeper would have done with the money had the vandal not broken his window.
He might have employed the tailor by purchasing a suit. The broken window
produced at least two unseen effects. First, it shifted unemployment from the
glazier, who now has a job, to the tailor, who doesn't. Second, it reduced the
shopkeeper's wealth. Explicitly, had it not been for the vandalism, the
shopkeeper would have had a window and a suit; now, he has just a window. 

The broken-window fallacy was seen in a column written by Princeton University
professor Paul Krugman after the terrorist attack on the World Trade Center,
"After the Horror" New York Times (Sept. 14, 2001). He wrote, "Ghastly as it may
seem to say this, the terror attack -- like the original day of infamy, which
brought an end to the Great Depression -- could do some economic good." He went
on to point out how rebuilding the destruction would stimulate the economy
through business investment and job creation. Again, do the smell test. If
Krugman is right, wouldn't the terrorists have done us a bigger economic favor
if they had destroyed buildings in other cities? 

Maybe we shouldn't be so harsh on these reporters and economists in light of the
fact that they didn't receive training at George Mason University's Economics
Department, where there are no bad economists.