The devastation caused by Hurricane Ian in Florida and South Carolina was catastrophic. The storm left collapsed homes and businesses in its wake, along with demolished hotels, impassable roads, smashed boats, and upended citrus trees. The economic damage, ABC News reported, could climb as high as $75 billion. As for the human damage, more than 100 deaths have already been confirmed, to say nothing of the incalculable toll caused by injury, trauma, and suffering.
When all is said and done, Ian may rank among the five costliest storms in US history. Yet to hear some analysts tell it, all that carnage and lost wealth is actually — a windfall!
The Wall Street Journal this week blithely assured its readers that the hurricane, far from being a terrible blow, is actually a blessing in disguise, since it “will nudge up economic output over the coming years.” The paper quoted University of Illinois economist Tatyana Deryugina, who had no trouble seeing the silver lining in other people’s ruined livelihoods. Sure, “some businesses [will be] forced to close,” she conceded. “On the other hand, there will be destroyed cars, destroyed housing that needs to be rebuilt, and people will go out and spend money and that will drive GDP up.”
Over on Fox Business, meanwhile, real estate executive Justin Greider was talking up all the funds that would be spent on recovery and rebuilding in Florida, telling anchor Maria Bartiromo that Ian’s impact would be to “fuel the economy.”
It never fails. Some disaster wreaks cataclysmic harm and experts pop up to label it an economic boon. After the biggest and deadliest hurricane of 2012, Business Insider published a story headlined “Now Get Ready For A Huge Economic Boost From Hurricane Sandy.” The horrific California wildfires of 2007, which burned nearly a million acres and forced the largest evacuation in state history, inspired a University of San Diego economist to tell the Los Angeles Times that “this will probably be a stimulus” since “there will be a huge amount of rebuilding.” Perhaps the most notorious recent example was Paul Krugman’s take in The New York Times three days after 9/11. “It seems almost in bad taste to talk about dollars and cents after an act of mass murder,” he wrote, but the terrorist attacks could be counted on to “do some economic good.”
These are just a few examples of the popular fallacy that destruction is economically beneficial, since money must be spent to repair what was damaged. The 19th-century French thinker Frederic Bastiat exploded such reasoning in a famous 1850 essay, “That Which is Seen and That Which is Not Seen.” The essay opens with a parable: A boy breaks a shop window. As the merchant sweeps up the shards of glass, dejected over his loss, onlookers attempt to console him by observing that the loss is actually a gain: The six francs it will cost him to restore his window, they point out, will benefit the glazier, who will then have more money to spend on something else. Those six francs will circulate, and the economy will grow.
The critical flaw in that thinking, explained Bastiat, is that it concentrates only on “what is seen” — the glazier who will be paid for a new window. What it ignores is “what is not seen” — everything that the shopkeeper will not be able to do with those six francs. Forced to spend the money on repairing his window, he will lose the opportunity to spend them on, say, a pair of shoes or a new book. The glazier gains, but the shopkeeper loses — and so does society as a whole. There is no financial upside to destruction.
No one commits the broken-window fallacy when it comes to their own personal losses. If your car is wrecked in a crash, you don’t rejoice because an auto dealer will get to sell you another vehicle. The money you must spend to get a new car might otherwise have been devoted to enlarging society’s stock of capital. All it will do now is restore what you already had.
Because billions of dollars will be spent to clean up, repair, or rebuild what Hurricane Ian obliterated, those billions will not be available for anything else. Whatever Florida gains from the resources committed to reconstruction can never outweigh what was lost through the storm’s devastation. It may be heartening to think that economic loss makes us richer. Real life doesn’t work that way.