Destruction is not an Economic Gain

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By Anonymous, on Mar 15, 2011

As we were all watching the damage from the 8.9 earthquake that rattled Japan on Friday, our former Economic Advisor to the President, Larry Summers, claimed that such a devastating tragedy would be good for the economy.

In a short interview with CNBC he stated, "It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place."  Suggesting that the rebuilding efforts would create more value to the economy than the loss of value from the destruction.  This type of statement surprises me that Summers didn’t burn his own house down after the economy tanked.

Summers needs to go back and reread Frederic Bastiat’s parable of the broken window.  Here it is abridged:

"Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

"...Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

"In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

 "Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.

"Whence we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end—To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit”...

"The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying—What would become of the glazier, if nobody ever broke windows?"

Japan has lost a great deal of capital and now following the quakes Japan will expend a great deal of effort cleaning up and just trying to get back to where they were.  Without the destruction Japan would have continued producing various other goods with their labor.

If you are interested in helping the Red Cross is doing a great deal of work and the Guardian has a list of other organizations collecting funds.