Broken Window Fallacy Resurfaces
The natural disaster of a tsunami could actually provide a temporary boost to the global economy.
Larry Summers, former director of President Obama’s economic council and a former head of the World Bank, said rebuilding could temporarily boost the Japanese economy.
The logical extension of his argument is that we should destroy multiple major metropolitan areas around the globe to “provide a temporary boost to the global economy.” Read Bastiat to gain a better understanding of the implications of the above statements. This is similar to the argument that war “stimulates” growth.
It’s nonsense of course. Using “economic growth” as a monolithic metric like this creates a gross distortion. This is why figures like GDP are deceptive. They fail to quantify the overall measure of wealth in a society.
Japan’s overall wealth plummeted overnight in the wake of the tsunami. Implying that rebuilding will “boost” the economy fails to acknowledge the vast destruction of existing wealth and the opportunity cost of unrealized progress which will never occur due to resources expended in rebuilding.
