Home Money Opinion: Could Sandy Help the Economy?

Opinion: Could Sandy Help the Economy?

7 min read

There’s a nice, quiet little restaurant in uptown Athens just off Court Street called Zoe Fine Dining. It’s a great place for a date with big, bright windows lining the brick streets outside,  but recently their main dining room window was nearly shattered to pieces. It has since been replaced and is back to looking gorgeous again while somewhere a window repairman in Athens County is enjoying a juicy steak dinner thanks to their unexpected new income. Window repair and other construction-related companies across the northeast are seemingly having an unexpected economic boom this week as well due to the high construction demands after Hurricane Sandy.

This sort of Keynesian economic theory that disasters help an economy more than hurt it has been covered time and time again, the most controversial of examples, whether or not you subscribe to its validity, came from economist and New York Times columnist Paul Krugman three days after 9/11. He wrote that “the terror attack – like the original day of infamy, which brought an end to the Great Depression – could even do some economic good.” It’s a sentence that feels dirty to even read, but is Krugman right?

Following Hurricane Sandy, others backing this sentiment have come out of the woodwork as well, such as economist Peter Morici who in a column for ‘Yahoo! Finance on this very subject wrote: “Rebuilding after Sandy…will unleash at least $15-$20 billion in new direct private spending.” With some economists raising Morici’s estimate into the “tens of billions,” the projected cost from Sandy of $50 billion may be exceeded by our own private spending. Could we actually see job creation and even turn a light profit from this dark disaster?

To answer that question, we turn to French theorist and economist Frédéric Bastiat and his “parable of the broken window,” otherwise known as the broken window fallacy. Bastiat debunked this belief that destruction creates wealth in a 19th century essay titled, “That Which Is Seen and That Which Is Unseen.”

“That Which Is Seen” is the money the owner of Zoe paid to repair his restaurant. They went out and hired a man to replace their window, seemingly creating a job. That man then spent this new income on a juicy steak, giving a local butcher money they may not have received had the window never been broken at all. That butcher then may go out and buy that door stop they’ve needed from the local market and so on and so forth. This process, in theory, goes on to boost the economy while simultaneously supporting the once frowned upon action of vandalism.

“That Which Is Unseen” is where this money will not go. This money will not go toward upgrading bar stools – customers may now have to deal with a slight wobble longer than expected. This money won’t go toward hiring an extra busboy – one more Athens resident will have to remain unemployed for at least another week. This money also won’t go toward a nice family meal for the owner – perhaps that butcher could have sold four steaks instead of just one. This reasoning directly applies to the spending after disasters like Sandy as well as government programs that supposedly create jobs.

Programs such as the “American Jobs Act” intended to create jobs for Americans is a great example. The “seen” results from programs such as the Nelsonville bypass and the jobs created by its construction. The “unseen” results? Well, the money out of your pocket due to tax increases to pay for these new government employees is money you won’t be spending at other local businesses that could have been used to create their own jobs.

To say destruction and government-induced construction creates long-term economic prosperity is as close-minded as our elected officials that seem to think taxing you and me to create these government jobs is an effective solution to a beaten down economy. With more money in our pockets, places like Zoe may actually be able to hire that extra busboy and create real job growth. A broken window and a French theorist aren’t necessary to figure out that logic.

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