No Silver Lining

One of the difficulties with maintaining a blog like this one is the nagging feeling that I’m constantly repeating myself. After all, how many times do I have to go over the broken window fallacy in light of yet another news article that focuses solely on what is seen, while ignoring what is unseen?

At least once more, I guess.

We all knew this was coming, of course. Anytime there’s a disaster anywhere in the world, some halfwit starts yammering about how, in the long run, this latest tragedy will actually be good for the economy. As far as I can tell, Larry Summers was the first halfwit to weigh in on the earthquake and tsunami in Japan.

Unfortunately, he wasn’t the last.

On Wednesday, the team over at Liberty on the Rocks tweeted about a Huffington Post article by Nathan Gardels titled “The Silver Lining of Japan’s Quake.” Read the complete article at your own risk. It’s difficult to stomach on a number of levels. At its most superficial, it’s just really bad Keynesian economics (pardon the redundancy). At a more fundamental level, it illustrates the callousness toward individual human suffering that seems to be part and parcel of collectivist economic theories.

He starts off the article with the usual disclaimer, saying no one would minimize the grief, suffering and disruption caused by the disaster in Japan. And then he segues immediately into thirteen paragraphs in which he minimizes the grief, suffering, and disruption caused by the disaster in Japan.

Here are the lowlights:

“But if one can look past the devastation, there is a silver lining. The need to rebuild a large swath of Japan will create huge opportunities for domestic economic growth, particularly in energy-efficient technologies, while also stimulating global demand and hastening the integration of East Asia.”

There is no silver lining. Thousands of people are dead. The need to rebuild does not constitute economic growth. It may generate business for people in certain industries as Japan works to replace that which has been destroyed, but this is not growth. This activity will not be directed at expanding the country’s productive capacity. Rather, it will be directed at returning the country to the level of productivity it enjoyed prior to the disaster.

“Japan has been wallowing in stagnation for years despite massive government stimulus programs and zero-interest rates because, simply put, in such an advanced, mature economy there was too little demand to generate sufficient returns to attract private investment.”

Japan has been wallowing in stagnation for years because of massive government stimulus programs and zero-interest rates. The underconsumption theory of the business cycle was dispelled by James Mill and J.B. Say almost two hundred years ago, and is as relevant to economics today as alchemy is to chemical engineering.

“By taking Japan’s mature economy down a notch, Mother Nature has accomplished what fiscal policy and the central bank could not.”

So here we have a tacit admission that the Keynesian fiscal and monetary policies that the Japanese government has pursued lo these many years were actually intended to destroy the country. Why this is considered a laudable public policy goal is beyond me.

“Now there are more bridges to somewhere to be built than one can count. Entire cities and regions need to be reconstructed in toto, from housing and commercial buildings to roads, rail lines, information networks, the energy grid and even the tsunami warning system that must be digitally revamped…The result of all the new wealth creation will be money in the pockets of Japanese to buy global goods and services.”

The inescapable conclusion of this article is that destruction is good. So according to the Keynesian “logic” displayed by Mr. Gardels, we should immediately start dismantling our own cities and towns, and then watch how wealthy we all become as we rebuild all that we have destroyed.

Has there ever been a clearer (or more nauseating) example of the broken window fallacy?

So once again with feeling, so that even people like Larry Summers and Nathan Gardels can understand – DESTROYING WEALTH DOES NOT MAKE PEOPLE WEALTHY! Destruction, as the term would imply to anyone other than a Keynesian, destroys productive resources. It makes us poorer.

Granted, once the dust settles, there will be a flurry of business activity as Japan rebuilds. And after this long and bitter period of reconstruction, Japan will once again have what it had prior to the disaster. This will be seen. Japan will not, however, have all that is unseen – all the additional wealth that the people of Japan would have been able to create and enjoy had they not suffered a massive earthquake, tsunami, and nuclear catastrophe.

But the most important unseen consequence will be the loss of all that those who died would have created had they lived. We are all made poorer for that.