Bastiat chega ao "Mainstream"...150 anos depois

Are disasters really good for the economy?
Early assessments of Katrina illustrate 'fallacy of the broken window'
By Martin Wolk MSNBC

Economists have been living up to their reputation as “dismal” scientists in recent days, predicting that despite the devastating human tragedy, Hurricane Katrina ultimately could have a positive impact on the economy.(..)

Part of the answer has to do with the way we measure economic activity. Gross domestic product may rise next year as a result of goods and services purchased to rebuild the affected region, but that does not take into account the $100 billion or more in housing and other infrastructure destroyed by the storm and its aftermath.

“We measure gross economic activity instead of net economic activity, so everything tends to look like incremental activity over time,” said David Joy, vice president of RiverSource Investments, the asset management arm of Ameriprise Financial.

Part of the answer has to do with the way we measure economic activity. Gross domestic product may rise next year as a result of goods and services purchased to rebuild the affected region, but that does not take into account the $100 billion or more in housing and other infrastructure destroyed by the storm and its aftermath.

The broken window fallacy

The basic flaw in the logic behind such accounting was attacked a century and a half ago by French thinker Frederic Bastiat who referred to the “fallacy of the broken window.”

Imagine a boy who has broken a window, he said in his 1850 essay “That Which is Seen and That Which is Not Seen.” Onlookers inevitably find a silver lining in the added work for the window repairman: “What would become of the glaziers if no one ever broke a window?"

Yet this thinking fails to take into account that the boy’s family, which will be paying to replace the window, will have to divert funds that could have been used to buy new shoes or a book instead.

“Everybody falls into that same fallacy all the time on just about everything,” said Bob McTeer, former president of the Dallas branch of the Federal Reserve and a fan of Bastiat’s work. “They look at what is happening without looking what would have happened.”

Simply take the broken window example to its logical extreme: If every window in town were broken there would be plenty of work for glaziers but few resources for other projects like building new houses or shops.

Similarly Katrina will suck away workers, materials and funds that otherwise could have been gone to other, potentially more productive uses elsewhere in the country."