Monday, November 12, 2012

The Broken Window Prosperity Myth

I was watching the television last week, watching the extensive damage caused by hurricane 'Sandy' but what really caught my attention was a prominent financial analyst who was happily 'forecasting' all the building, renovation, and infrastructure repairs that would follow Hurricane Sandy. He went on to say that this event would provide the much needed 'boost' to the economy in the region and went on and on with some fancy statistics and numbers to prove the same. Before I go further, just to make something clear right at the onset - Hurricane Sandy destroyed wealth. Perfectly good houses were ruined. Passable roads were wrecked. Decent boats were sunk. 

But this is just another way that some economists give you the wrong idea. They tell you that the GDP will go up as people rebuild and that jobs will increase in the construction sector. "Damage is good because it 'puts people to work' or it 'increases demand'" - say some economists and stock speculators.