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Health & Fitness

Seeing Hurricane Irene through Bastiat's Broken Window

More than a century and a half ago, Frederic Bastiat wrote about a broken window and unforeseen consequences. It's still a valuable lesson.

Did you have damage from Hurricane, or Tropical Storm Irene? If you did, or if you know anyone who did, did you stop to consider how good that damage is for the economy?

Things will need to be repaired, contractors will have work to do, the power needs to be restored, power company workers will be working lots of overtime and if cars were damaged, auto body shops will have some work too.

Those earned dollars will be circulated back into the local economy. Money that changed hands to repair storm damage will be spent in local restaurants, hardware stores, clothing stores, etc. It keeps the flow of spending going. Some would even say hurricanes can “stimulate” the economy. 

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If we woke up one morning and drove downtown to get a cup of coffee, and we noticed half of the shop windows were shattered, would any of us think of the destruction as being helpful? If a group of mischievous teenagers drove through the streets shooting windows out with pellet guns, would anyone think of the vandals as economy-stimulating heros?  

Why not? The merchants would call their handymen, glaziers or contractors, there would suddenly be quite a lot of work to be done downtown. The windows would need to be replaced, the trucks and working men would appear and money would be exchanged.

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The contractor that replaced the jewelry store window might take the money he earned and bring his family to dinner at the restaurant with the broken window. The glazier that replaced the window at the bakery may use some of his earnings to buy his daughter a charm bracelet at the jewelry store. Some of the repairmen would get together for beers and buffalo wings at the local pub.

The vandals (or Tropical Storm Irene) jump started the economy of the town; can anyone possibly argue with that? After the dust settled, did everyone make out okay? The broken windows provided the spark our economic engine needed. Does that language sound familiar? Is our economy an engine? Does it need a stimulus or a spark to get it going?

There’s actually a story that Frederic Bastiat wrote more than a century-and-a-half ago called, “The Broken Window Parable” or “That Which is Seen and That Which is Unseen,” but he took the scenario a bit further. He also talked about the unseen, unintended consequences of the spending caused by the destruction.

The people replacing the windows got the money that was set aside for, and would have been spent on something other than the repairs. The shop owner might have used the money to buy new suits from the local tailor, so instead of having an intact window and new suits, the victim only has the window and the tailor wound up with nothing. Destruction is just destruction.

We hear the stimulus theory all the time, in different ways. Spending provides the spark that gets the economic engine started. There are Nobel Prize-winning economists that think of earthquakes, hurricanes, tsunamis (and even wars) as good news, strictly from the economic standpoint.

We’ll need to repair and replace damaged buildings; the Home Depot, lumber yards and hardware stores will be selling; repair men will be repairing. This is just like when the pesky teenagers broke the windows downtown. Construction supplies, labor and transportation will get things going again.

There’s no doubt, the broken windows need to be replaced, and money needed to be exchanged to replace them. That is what is seen. What we don’t see is, what Bastiat pointed out was, what the money wasn’t spent on.

The economy was “jump started” at someone’s expense, or was it even “jump started” at all? The economy wasn’t grown, the money wasn’t created or “made,” it was rearranged. "It seems like we’re playing “whack a mole.” We get one mole (or problem), it gets shoved back into its "hole," and three more pop out because of it.

Whenever we hear anyone telling us how spending programs (either brought on by an act of God or Congress) are going to provide the necessary spark to get our economy moving, whenever we hear about infrastructure spending, see a cash for clunkers type program, or a “stimulus” spending bill, or whenever anyone claims that they can provide a boost to our economy by spending money, we should consider those unintended consequences. We should stop for a second and think of Bastiat’s story of the broken window.

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