Hurricanes like Harvey almost always leave two things in their aftermath: broken windows and articles advocating the broken window fallacy.
Unfortunately, while we can’t stop hurricanes from occurring we should be able to put an end to bizarre idea that natural disasters that destroy property are beneficial to our economy. For after 6,712 cyclones, typhoons, and hurricanes the evidence is clear: Bastiat was right all along.
In 1850, the economic journalist Frédéric Bastiat introduced the parable of the broken window to illustrate why destruction, and the money spent to recover from destruction, is not actually a net benefit to society (see the video at the end of this post for an explanation of the broken window fallacy). For most people the idea that destruction doesn’t help society would seem too obvious to warrant mentioning. But some liberal economists argue that destruction can lead to an economic boom, mainly because it provides the government with an opportunity to spend more money.
If the liberal economists are right, then we should find that destructive storms lead to economic growth. But a pair of researchers, Solomon M. Hsiang and Amir S. Jina, published a study that shows the exact opposite. Using meteorological data, they reconstructed every country’s exposure to the 6,712 cyclones, typhoons, and hurricanes that occurred during 1950-2008 and then measured the long-term growth:
The data reject hypotheses that disasters stimulate growth or that short-run losses disappear following migrations or transfers of wealth. Instead, we find robust evidence that national incomes decline, relative to their pre-disaster trend, and do not recover within twenty years. Both rich and poor countries exhibit this response, with losses magnified in countries with less historical cyclone experience. Income losses arise from a small but persistent suppression of annual growth rates spread across the fifteen years following disaster, generating large and significant cumulative effects: a 90th percentile event reduces per capita incomes by 7.4% two decades later, effectively undoing 3.7 years of average development. The gradual nature of these losses render them inconspicuous to a casual observer, however simulations indicate that they have dramatic influence over the long-run development of countries that are endowed with regular or continuous exposure to disaster.
“There is no creative destruction,” Jina told The Atlantic. “These disasters hit us and [their effects] sit around for a couple of decades.” He added, “Just demonstrating that that was true was probably the most interesting aspect for me to start with.” Additionally the researchers found,
A cyclone of a magnitude that a country would expect to see once every few years can slow down an economy on par with “a tax increase equal to one percent of GDP, a currency crisis, or a political crisis in which executive constraints are weakened.” For a really bad storm (a magnitude you’d expect to see around the world only once every 10 years), the damage will be similar “to losses from a banking crisis.”
Unfortunately, the researchers tie this to the dubious conclusion that the effect of climate change on cyclones will be “roughly $9.7 trillion larger than previously thought.” That could happen. Or it could be the case that climate change reduces the cost of destructive storms in some areas by keeping them from hitting populated areas. We don’t really know what the effect will be, so we shouldn’t be basing trillion dollar public policy decisions on unreliable climate change models.
But despite their disputable conclusion, the researchers have done an invaluable job of providing support for what Christians should know: wanton destruction is not a net benefit to mankind.
Addendum:
To restate the Christian case against the broken window fallacy: “God has not just called us to preserve what he has given us, but to increase and grow it,” says Anne Bradley. She explains that our job description as given in Genesis 2 is to:
• Be fruitful and multiply.
• Create rather than destroy.
• Use our ingenuity and talent to increase the sum of flourishing, not just preserve existing levels.
The Christian approach to economic growth—which tends to lead to increased human flourishing—is to be innovative, productive, creative, and responsible stewards of resources. Everyone understands this intuitively, of course, which is why we don’t cheer about how economically fortunate we are to be hit by a hurricane.
As for the parable of the broken window, economist Art Carden explains Bastiat’s reasoning in this video:
