Hurricanes almost always leave two things in their aftermath: broken windows and articles advocating the broken window fallacy.

As economist Don Boudreaux wrote earlier today, “Americans will soon be flooded by commentary that assures us that the silver lining around the destruction caused by hurricane Sandy is a stronger economy. Such nonsense always follows natural disasters.” The only detail Boudreaux gets wrong is that such nonsense has preceded the actual disaster. The Atlantic, wanting to get a jump on being wrong, published an article today at noon arguing that Hurricane Sandy will “stimulate the economy” in two ways:

First, the threat of a dangerous event pulls economic activity forward. Families stock up on extra food and supplies to prepare for a disaster. Second, and much more significantly, the aftermath of storms requires “replacement costs” that raise economic activity by forcing business and government to rebuild after a destructive event.

Frederic Bastiat provided the ultimate rebuttal to this spurious thinking 162 years ago in his essay ‘That Which is Seen, and That Which is Not Seen.’ So why do we people make the same claim that destruction is economically beneficial? Could it be that people are simply unaware of Bastiat’s “parable of the broken window”?

Back in August economist Bryan Caplan asked why the one group that should be familiar with Bastiat’s essay—economists—don’t universally love it:

It seems like all economists, regardless of ideology, would be thrilled by the way that Bastiat brings a dry textbook topic to life.

Recently, though, I persuaded one of my favorite liberal economists to read it. His reaction: “Meh.” Which makes me wonder: How many moderate, liberal, or leftist economists love “What Is Seen and What Is Not Seen”? How many would love it if they read it?

In response to Caplan, Slate’s “business and economics” columnist Matthew Yglesias wrote:

Bastiat’s alleged broken windows fallacy involves simply assuming that there’s no such thing as genuinely idle resources or an “output gap.” In that context, yes, it’s a vibrant intuitive depiction of crowding out. But this doesn’t counter any Keynesian or monetarist points about the viability of stimulus during a recession induced by nominal shocks, it involves assuming that no such recessions can occur even though they plainly do. In defense of Bastiat, at the time he was writing the modern industrial business cycle was a very new thing and the vast majority of economic ups and downs were caused by things like bad weather which—as you can see in the corn futures market today—is indeed a decisive consideration in an agricultural economy. But that’s no excuse for people sitting around in 2012 to be pounding the table with an old book that’s non-responsive to modern issues professing to be baffled why people don’t find it more persuasive.

As is his tendency, Yglesias strings together a bunch of words he found in Macroeconomics textbook to cover for the fact that he really doesn’t know what he’s talking about. Strip away the excess verbiage and his reply is basically that Bastiat is old and economics doesn’t really work the way it did back in the ninetieth century. The fact that Yglesias thinks that opportunity cost is an outdated concept (or the fact that he doesn’t grasp that is what Bastiat’s essay is about) says quite a lot about passes for economic punditry in the twenty-first century.

Sadly, such lousy economic thinking is widely shared—even by people who should know better. And the cumulative effective of such shoddy reasoning has done more damage to our country than every natural disaster in our history.

Update: While I’ve simply assumed that people have the common sense to agree with me and Bastiat (as is my tendency), to hear an actual explanation for the point I’m trying to make I recommend Tim Worstall’s must-read article in Forbes. His explanation of why GDP is different from a country’s wealth should be added as a disclaimer anytime the GDP figure is presented in the news.

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  • Kaleberg

    As best I can tell Bastiat assumes that the shopkeeper is just breaking even, so spending to repair a window means he either spends less on something else or has to borrrow the money. A profitable shopkeeper would just have to take the money out of savings or profits, and there is a good chance that this would be money otherwise unspent. A money losing shopkeeper would also have to spend less on something else, but if the window were not repaired, he or she would soon be out of business. Who shops at a store where the windows aren’t repaired, the floor uncleaned and the stock out of date?

  • Moggio

    Thank you for your post but why is Bastiat’s lesson still valid when the unemployment rate clearly is higher than its natural level? Thanks in advance.

    • http://Culture11.com Joe Carter

      My initial guess as to why unemployment remains higher than the natural rate is “sticky wages.” If people were wiling and able to adjust the wage they would accept, I suspect the unemployment rate would be lower. But most Americans tend to create a lifestyle whose maintenance requires a certain income level. We also have the prestige factor. Many people (and I have been one of them) will, when unemployed, refuse to take a lower paying and less prestigious job because they are holding out for something comparable to what they had before.

      Because people will not take a lower wage (and at the minimum wage level, they cannot go lower), it keeps the labor market from reaching equilibrium. At least in times of recession. When the economy is growing the need for labor helps push up wages, thereby enticing people to take the higher paying jobs (and clearing out jobs for other people to take).