Is a Hurricane actually good for the Economy? Broken Window Fallacy

[LowOiL]

I found the following article very interesting because you often hear it repeated after large scale weather events. The belief that the nation actually as a whole benefits economically from such events as hurricanes. Well I stumbled upon what I considered a good read from 2012 on the subject.

In short, the answer was "No", that natural disasters were not in the long run good for an economy.

The Broken-Window Fallacy

The article (linked above) was well written and told in an interesting parable like manner, as often is presented in the Bible.

Anyway, hope you find it as interesting as I did. Comment if so inclined.

Tag: Somewhat Libertarian (which I am not, though thoughts somewhat overlap what I believe in places).

 

[Reynolds]

I found the following article very interesting because you often hear it repeated after large scale weather events. The belief that the nation actually as a whole benefits economically from such events as hurricanes. Well I stumbled upon what I considered a good read from 2012 on the subject.

In short, the answer was "No", that natural disasters were not in the long run good for an economy.

The Broken-Window Fallacy

The article (linked above) was well written and told in an interesting parable like manner, as often is presented in the Bible.

Anyway, hope you find it as interesting as I did. Comment if so inclined.

Tag: Somewhat Libertarian (which I am not, though thoughts somewhat overlap what I believe in places).

They are like any other economic stimulus, good in the short term but negative in the long term.

 

[InTheLight]

The broken window fallacy is an interesting mental exercise but I find it has some flaws. First of all it is not a given that the shopkeeper whose window was broken would have bought a pair of shoes with the $6 that he needed to devote to fixing his window. This reminds me of the argument against building sports facilities because if a team leaves your town people will just find something else to spend their season ticket money on. No, I disagree. People who are season ticket holders in the NFL are not going to spend their $3,200 that they spent on season tickets on something else like basketball tickets, the theater, or new furniture. They'll probably just keep their money.

In the broken window fallacy, either the shopkeeper needed new shoes or he didn't. If he needed them he would buy them and he would fix his window. Or maybe he wanted to save the money and wasn't going to buy shoes at all. My point is the money need not be spent on anything but when the window is broken then it must be spent on that.

Moving on to natural disasters like hurricanes, no they are not a boon to economic growth they do not long-term stimulate the economy. However if insurance becomes involved, well there is a large pool of money just sitting there inactive that could be put to use and in that sense the natural disaster could be seen as a boon to the economy.

Sent from my Motorola Droid Turbo.

 

[JPPT1974]

There have been disasters before. And really it is not the first nor will be the last time. In facing them. As it is about surviving and being strong in the Lord.
If you give Him that chance. I agree with the last thing over in the natural disaster can be a boon to the economy. If you do it the right way. What would Jesus do indeed!?

 

[LowOiL]

First of all it is not a given that the shopkeeper whose window was broken would have bought a pair of shoes with the $6 that he needed to devote to fixing his window.... They'll probably just keep their money.

In the broken window fallacy, either the shopkeeper needed new shoes or he didn't. If he needed them he would buy them and he would fix his window. Or maybe he wanted to save the money and wasn't going to buy shoes at all. My point is the money need not be spent on anything but when the window is broken then it must be spent on that.

Moving on to natural disasters like hurricanes, no they are not a boon to economic growth they do not long-term stimulate the economy. However if insurance becomes involved, well there is a large pool of money just sitting there inactive that could be put to use and in that sense the natural disaster could be seen as a boon to the economy..

Yes, I imagine there is going to be the Scrooge types that don't do anything but stuff their mattresses with money. Opps Scrooge actually invested (even if it was probable at breakneck rates)...

But yes, there is going to be some that save, and today it would probable be with a bank that also lends to others who invest in the community. I imagine that some people still bury their money in glass jars around the yard, but not many. But the point is valid, some will just accumulate and pass on their wealth via death where it comes in play again.

But that also neglects those that are saving for something big and it will only come to play when they get ready to put it in play by having what they deem is enough. So also there is a chance that even more than 6 dollars would be put in circulation (spent) and that window breakage only delayed it from happening. I think it all works out, but yes, there is not a 100% yield factoring in your valid points. The original article was but a short general introduction to an economic thought. I don't think it was intended to factor every factor as we tend to do in debates. But generations come and go, and fortunes wax and wane over lifetimes. Money usually gets spent given time, and more times than not, the home is the big ticket item people choose to invest in.

 

[Matt Nichols]

The broken window fallacy is an interesting mental exercise but I find it has some flaws. First of all it is not a given that the shopkeeper whose window was broken would have bought a pair of shoes with the $6 that he needed to devote to fixing his window. This reminds me of the argument against building sports facilities because if a team leaves your town people will just find something else to spend their season ticket money on. No, I disagree. People who are season ticket holders in the NFL are not going to spend their $3,200 that they spent on season tickets on something else like basketball tickets, the theater, or new furniture. They'll probably just keep their money.

In the broken window fallacy, either the shopkeeper needed new shoes or he didn't. If he needed them he would buy them and he would fix his window. Or maybe he wanted to save the money and wasn't going to buy shoes at all. My point is the money need not be spent on anything but when the window is broken then it must be spent on that.

Moving on to natural disasters like hurricanes, no they are not a boon to economic growth they do not long-term stimulate the economy. However if insurance becomes involved, well there is a large pool of money just sitting there inactive that could be put to use and in that sense the natural disaster could be seen as a boon to the economy.

Sent from my Motorola Droid Turbo.

You miss the entire fallacy! It's not what he spends the money on, it could be anything or he could save it as you mentioned. The point is he would have the window and the $6, get it! If he saves it, the economy is even better off! Banks have more money to loan and create money with his deposit, you need to study a little economics before posting foolishness!

 

[InTheLight]

You miss the entire fallacy! It's not what he spends the money on, it could be anything or he could save it as you mentioned. The point is he would have been the window and the $6, get it! If he saves it, the economy is even better off! Banks have more money to loan and create money with his deposit, you need to study a little economics before posting foolishness!

I need to study economics--you are amusing.

It does depend on what he spends the money on. The fact is if he has to spend money on a repair he's only replacing a window that he already owned. He's not buying anything "new". He didn't choose to spend that money, he was forced to spend it. That means it is diverting money from something else he could have spent it on.

Economies don't grow by having money idling, they grow when people consume things and spend money. Banks don't make loans unless there is economic activity. No economic activity, no reason to make loans.

 

[InTheLight]

Whole video is funny, but go to the 1 minute, 25 second mark for the relavent section