The mythical claim that reconstruction efforts after Sandy will grow the economy

 after sandy

If you have been keeping up with reports on the ravages of Hurricane Sandy or were directly impacted by the storm and/or its aftermath (yo!), you know the news is not good. Seaside communities in New Jersey were especially hard hit, and so were low-lying sections of New York City. Several dozen homes burned to the ground in Breezy Point, a barrier island off Queens, and the borough of Staten Island—true to its name—remains isolated on Saturday, its inhabitants feeling forgotten and desperate.

 
My family and I we among the lucky ones, having only to contend without electric power, heat, water, or toilet facilities for four days. (Light returned on Friday but not heat or hot water, making that first hot shower an elusive dream still.)
 
View slideshow: Devastation caused by Hurricane Sandy
As of Saturday estimates, the national death toll is believed to be around 100. The total loss to our already-imperiled economy is estimated at between $30 and $50 billion, according to the catastrophe risk analysts at EQECAT. No value can be placed on the lives lost, but economists are torn on the subject of whether the massive physical destruction that the storm left in its wake might actually create jobs. Peter Morici, a professor at the University of Maryland, former chief economist at the U.S. International Trade Commission, and frequent guest on the FOX News Channel, wrote in a blog post at CNBC.com:
 
Disasters can give the ailing construction sector a boost, and unleash smart reinvestment that actually improves stricken areas and the lives of those that survive intact.
 
Not everyone agrees with this assessment. Larry Kudlow, a former chief economist on Wall Street and also a CNCBC blogger, claimed that if reconstruction following a disaster were a net positive, then it would make sense to destroy and rebuild bridges and roads throughout the country as an economic stimulus. To underscore his point, Kudlow in an interview on Thursday cited the parable of the broken window, developed by 19th-century French economist Frédéric Bastiat. Also known as the glazier's fallacy, the parable demonstrates how opportunity costs, along with the law of unintended consequences, affect economic activity in ways that are "unseen" or ignored. Bastiat wrote:
 
Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—’It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?’
 
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
 
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
 
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, ‘Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.’
 
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
 
In the same way, the money spent to rebuild the iconic Atlantic City boardwalk or to repopulate Breezy Point, will come out of the pockets of taxpayers, via FEMA allocations. Knowing whether those funds might have been used more productively under other circumstances is impossible to know. The gamble that they will end up growing the economy has about the same chance of success as President Obama’s outlay of $831 billion on a Keynesian stimulus.

 

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