Hurricane Irene Rebuilding Is No Economic Boost

July 31, 2012

Free Market Foundation

Get ready for a bunch of demand-side economists telling you the post-Hurricane Irene rebuilding phase is a good thing for future economic growth. Don’t believe it, says Lawrence Kudlow, host of CNBC ‘s The Kudlow Report.

Recall the parable of the broken window, introduced by French free-market philosopher Frederic Bastiat in an 1850 essay called “That Which Is Seen, and That Which Is Unseen.”

While Bastiat agrees that repairing broken windows is a good thing, encouraging the glazier’s trade and income, he argues that it is quite different from the idea that breaking windows is a good thing, in that it would cause money to circulate and encourage industry in general.

Why? Because a shopkeeper who spends money to fix broken windows cannot spend or invest that money on new ventures.

In other words, the businesspeople who are spending to fix the damage of Hurricane Irene are not spending or investing that money on brand-new ventures or start-ups, or on ordinary goods and services.

When the final tally is in, Irene may qualify as a top 10 hurricane. But the history of such disasters is that the national economy rebuilds and snaps back shortly thereafter. Nonetheless, the economic rebuilding essentially gets you back to where you were before the storm. There is virtually no net new investment from all of this.

Source: Lawrence Kudlow, Hurricane Irene Rebuilding Is No Economic Boost, Investor’s Business Daily, August 29, 2011.

For text: http://www.investors.com/NewsAndAnalysis/Article/583155/201108291855/Hurricane-Irene-Rebuilding-Is-No-Economic-Boost.htm

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 06 September 2011