Earthquake Economics: View From the Epicenter

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Well, somebody beat me to it. Shortly after the East Coast earthquake, someone with a Google+ account—this is Google's answer to Facebook and Twitter—posted the following note under the username "Paul Krugman": "People on Twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage."

It turns out that this wasn't the real Paul Krugman, but a fellow named Carlos Graterol, who explained that he did it as parody, to draw attention to the "many misguided beliefs that Paul Krugman holds, defends, and espouses on a daily basis."

Of course, Krugman is pretty hard to parody these days. This is the same guy who posited the "stimulative" effect of the following policy:

If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months.... There was a "Twilight Zone" episode like this in which scientists fake an alien threat in order to achieve world peace.

Yes, that's right. Now he's getting his economics from John Maynard Keynes by way of Rod Serling. Laugh if you like, but on a grimmer note, this is the same pseudo-economist who saw a bright side to the 9/11 attacks because "all of a sudden, we need some new office buildings" and "rebuilding will generate at least some increase in business spending."

All of this is a basic economic fallacy, which goes to show that the Nobel Prize in economics is worth about as much as the Nobel Peace Prize these days. This is the Fallacy of the Broken Window.

The fallacy was memorably explained in Henry Hazlitt's classic introduction to economics, Economics in One Lesson. Suppose a young hoodlum throws a brick through the window of a store. At first this seems like a destructive act, but soon the bystanders reflect that it will create work for the glass-maker who is called in to install a new window. So the young hoodlum has actually "stimulated" the local economy.

Hazlitt points out that a genuine economist, by contrast, would take into account the other uses for the money that will now have to be spent fixing the window. The shop owner will have to spend money just to restore himself to where he was before the hoodlum threw the brick, instead of spending money to move forward, either by investing in his business or by increasing his own well-being through consumption. So the broken window is a dead loss after all.

I have a firsthand perspective on this issue right now, because for me, the fake Krugman's wish came true: the earthquake was worse. For most of the East Coast, tipped-over lawn furniture was the extent of the damage. But I live pretty much on top of the epicenter of the quake—I write this among the occasional rumblings of small aftershocks—and things around here are a little more serious.

I have never been through an earthquake before, and the thing I remember most is that it feels and sounds like destruction. It's not just a rumble, but a rending, grinding rumble. It sounds like what it is: the earth tearing itself apart. A train track runs along the front edge of our property, and my first thought was that a train had just derailed in my front yard. Yes, to all of you blasé West Coasters, this was "only" a 5.9 quake, but I hope I never experience anything worse.

No one is hurt, but out here there is a lot of property damage. The local schools are closed while they fix broken pipes and collapsed ceilings, and the personal effect on me is significant. My wife and I have an old house with three chimneys (that comes out to nine fireplaces, which is one of the reasons we bought the place). One of those chimneys is now partially collapsed, spreading a thick layer of brick dust through the whole house, and all three are badly cracked and in need of immediate stabilization and rebuilding. The first priority: covering the broken tops of the chimneys with tarps, because we're about to get hit with pouring rain from Hurricane Irene.

Strangely, we don't have any actual broken windows, just the odd bits of smashed crockery, but we're experiencing the "broken window" phenomenon concretely and first hand. The earthquake will definitely "stimulate" some employment for a local crew of masons, but as in the classic fallacy, it will be at the expense of other, more productive uses for the same money, as we put off planned purchases and renovations. The repairs will probably cost as much as a modest new car—which, come to think of it, is one of the purchases we'll be putting off.

All of which would be just my personal problem, if not for the fact that the Fallacy of the Broken Window is the basic premise on which America's national economic policy is currently built.

One of the recent fads among the left-leaning commentariat is to deny that the national economy works the same way as a household budget. This is one of the cheap ways that dishonest statist economists try to get us to ignore the obvious, common-sense flaws in their theories. In fact, there is no fundamental difference. A disaster is a disaster. Every dollar used to build ray guns to fight off Krugman's imaginary alien invasion is a dollar that could have been used for genuine production. Every dollar seized or borrowed or inflated away to pay for "stimulus" spending that goes to prop up public employees' unions is a dollar that could have been spent or invested by the people who earned it.

Should the earthquake have been bigger? It is bigger. Outside of a few little towns in Central Virginia, the East Coast quake is insignificant. But it is dwarfed by the vast destruction of wealth caused by taxation, borrowing, and inflation to fund this administration's failed stimulus. The essence of President Obama's economic policy is to go around smashing people's windows (and shattering the value of our dollars), in the hope that he can get the economy moving by stimulating business for the world's glass-makers. Call it Earthquake Economics.

But remember the old fallacy: it's all still a dead loss in the end, and that is why the economy isn't growing.


Robert Tracinski is senior writer for The Federalist and editor of The Tracinski Letter.

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