Hurricane Sandy a Huge Boon to the Economic Fallacy Industry

Broken windows as far as the eye can see


The windows, wherever they are now, are surely broken, too

Libertarians on Twitter are sighing in frustration at this monstrosity of logic by Peter Morici, an economist and professor at the Smith School of Business, University of Maryland:

Disasters can give the ailing construction sector a boost, and unleash smart reinvestment that actually improves stricken areas and the lives of those that survive intact. Ultimately, Americans, as they always seem to do, will emerge stronger in the wake of disaster and rebuild better-making a brighter future in the face of tragedy. …

[R]ebuilding after Sandy, especially in an economy with high unemployment and underused resources in the construction industry, will unleash at least $15-$20 billion in new direct private spending—likely more as many folks rebuild larger than before, and the capital stock that emerges will prove more economically useful and productive.

Regarding the latter, consider a restaurant with inadequate patronage—its owner invests the insurance settlement in a new more attractive business. On the shore, older smaller homes on large plots are replaced by larger dwellings that can accommodate more families during the summer tourist season. The outer banks of North Carolina saw such gains several decades ago after rebuilding from a storm of similar scale.

Perhaps cognizant that people might scream at him about broken windows, he shifts the debate a bit to argue that insurance settlements will result in people rebuilding bigger and better. It's not replacing – it's real economic growth. Eventually.

Except as Ira Stoll pointed out yesterday, the insurance for those homes on the shore is likely subsidized by the federal government. The money spent from those insurance claims is hardly growth. It's money shifted from one part of the economy to the other (or, you know, spending money we don't even have). So when those bigger and better buildings get destroyed in yet another hurricane a couple of decades down the line, guess who pays again?

In addition, here are some lovely stats from July showing where Americans stand on savings. The average American family has $3,800 in savings. About 25 percent of American families have no savings at all. I don't know the economic situation of North Carolina decades ago, but I'm guessing they hadn't been struggling through a decade of a recession.

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  1. It takes a hurricane.

  2. smart reinvestment that actually improves stricken areas and the lives of those that survive intact.

    They’re going to level Manhattan?

    1. A friend said last night, “If any part of the country needs an enema, it’s New York City.”

  3. They can just sue NOAA to recover costs.

    And cue what’s his name to tell us it’s only a fallacy if we’re at one hundred percent resource utilization or whatever.

    1. Hitler?

  4. You’d think an economist would understand the concept of opportunity cost. I guess not.

    1. It is difficult to get a man to understand something when his job depends on not understanding it.

    2. Economists? Yes. Keynesian derpconomists? No.

    3. Peter Morici is just the worst. Cue the usual takedowns on Cafe Hayek and/or EconLog.

  5. If only we had storms like this more often. It would almost be as good as an alien invasion.

    1. You know who else thought an alien invasion was a good thing?

      1. The old people in Cocoon?

      2. Ke$ha?…..iling.html

        She brings new meaning to “You’re ugly and your mom dresses you funny”.

      3. Jeff Goldblum?

  6. Broken Windows — The Movie as mentioned in the morning links sounds like a good idea.

    Detectives are trying to track down some psychopath who keeps causing disasters that destroy infrastrure. The twist at the end is that its the economist/politician who has been pushing keynesian spending.

    1. …and he’s been dead the whole time.

      Dun dun DUN!

    2. The twist at the end is that its the economist/politician who has been pushing keynesian spending.

      Or it turns out to be a secret government program designed to stimulate the economy by promoting “brick and mortar construction jobs” that the country so desperately needs. Once the detective finds out he and his family are killed in a mysterious explosion. The end.

      1. No, no, no! A loose brick falling off a building in a area designated as blight and scheduled to be eminent domain’d (but obstructionist libertarians have been blocking the sale in court) beans him. His computer is stolen by picketing protestors, his notes scattered in the wind?
        The people running the program use it as more evidence for the program.

        1. That works. As long as there is a grand government conspiracy with no resolution in the end.

  7. I can’t remember the name of the little community (mentioned here not long ago), but this will undoubtedly provide the last bit of leverage to clear them off their “underused” coastal land, in order to provide decent people an opportunity to live on the beach, free of smelly indigent layabouts.

  8. See, this is why you never reach Peak Stupid.

  9. In what may go down as the high water mark of climate denial dementia Watts Up With That? has already begun denying that Sandy was a hurricane,

  10. Hey I can actually think of at least one case where a natural disaster created far greater prosperity after it passed.

    The Black Death.

    Course it wasn’t killing off 1/4th of Europe with localized death tolls much higher that did the trick, it was the eradication of centuries worth of stagnating laws and customs over land ownership and inheritance that did the trick leading the the eventual end of Feudalism and the growth of the middle class during the Renaissance.

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