“Are Disasters Good for the Economy?”

Thoughts on a Free Market Economy…
“Are Disasters Good for the Economy?”
By Phyllis Hunsinger
September 1, 2017

The recent hurricane named Harvey left in its wake a path of devastation along the Gulf coast region of Texas in late August, 2017. Hundreds of thousands of people were without power; millions of dollars damage to businesses, city centers, infrastructure, and homes were recorded. Rebuilding the damaged facilities will take years. Business will be soaring for the construction crews, building supply companies, and home furnishing stores.

Does this mean a disaster is good for the economy? Not so, according to Henry Hazlitt in his book “Economics in One Lesson,” where he describes the fallacy of the broken-window. On the surface, it may seem the need to rebuild after a disaster results in a widening circle of employment and material. True there is a flurry of activity between the destroyed businesses and the producers of certain things. The destruction of houses and cities does make more business for the building and construction industries and provides employment for individuals associated with these activities.

There is a half-truth about the business improving for certain segments of the economy. What the half-truth does not reveal is that these disasters simply divert the demand of these particular products from other products. Rebuilding redistributes funds; it does not create more demand throughout the economy. Following a disaster, wherever business increases in one direction, it will correspondingly be reduced in another.

There has been a push on the Federal level to put money into improving the roads and highways throughout the U.S. Now, following the most recent disaster, many of these roads must be completely rebuilt, at a cost much higher than simply improving the roads would have cost. These funds will now be diverted from other areas in the U.S. needing highway improvements.

Disasters destroy accumulated capital. As Hazlitt said, “The basic truth is that the wanton destruction of anything of real value is always a net loss; a misfortune, or a disaster, and whatever the offsetting considerations in a particular instance can never be, on net balance, a boon or a blessing.”

https://www.free-dom.co.us, Phyllis Hunsinger © 2013 All Rights Reserved

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