When Hurricane Ian made landfall in Florida, pictures and videos flooded social media, highlighting the devastation as the storm destroyed businesses, damaged homes, and decimated public property. Unfortunately, like every other time a major storm wreaks havoc on a state, there will always be one person or group to champion the economic boom it would bring to the area. For anyone espousing these ideas, eminent 19th Century French economist Frederic Bastiat would like to have a word with you.
A Wave of Hurricane Ian Prosperity?
It is estimated that Ian will be one of the most expensive hurricanes in the nation’s history, causing between $40 billion and $70 billion in damages. But JLL Senior Vice President and Florida retail lead Justin Greider told Fox Business that rebuilding efforts from the latest event will “fuel the economy” in the Sunshine State. He told network host Maria Bartiromo:
“As we start looking at recovery, I think to your point, there’s going to be a lot of money spent recovering and rebuilding from this hurricane, particularly as it worked through the entire state and had different impacts in different markets. Not everywhere looks just like Fort Myers, but there’s certainly been damage and destruction that’s going to fuel the economy here in the coming months.”
This is not the first time people have purported that destruction can grow the economy. In fact, this is the cornerstone of Keynesian economics. Economist Paul Krugman’s 2011 position that a space-alien invasion would accelerate the gross domestic product (GDP) is a summary of what Keynesianism is all about and what so many people think. Former Treasury Secretary Larry Summers asserted that the March earthquake in Japan would “provide a jolt to the economy over the short term.” The Economist laughably explained that former President Barack Obama’s hilarious “Cash For Clunkers” program “brought about exactly the sort of stimulus that is urgently needed.” Many Ivory Tower academics still hold the 3×5 card of allowable opinion that the Second World War brought the United States out of the Great Depression.
Basic Austrian economic theory and data would suggest otherwise. In summary, this is poppycock.
Broken Window Fallacy
In 1850, Bastiat wrote one of the most important contributions to the field of economics, titled “That Which is Seen, and That Which is Not Seen.” In one section of the essay, he discusses “The Broken Window” and a shopkeeper who learns his store windows have been broken by a hooligan and will now have to spend money to hire a repairman to fix the damage. While the locals were dismayed by their discovery, they agreed that this would stimulate the economy. But, as Bastiat put it, the juvenile delinquent “spurred trade to the amount of six francs.”
“It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library,” Bastiat opined. “In short, he would have employed his six francs in some way, which this accident has prevented.”
(Photo by Lokman Vural Elibol/Anadolu Agency via Getty Images)
The seen is the serviceman who arrives to install a new window. The unseen is the shopkeeper who could have used the funds to purchase a pair of brown Oxford shoes, a new Agatha Christie book, or a suit to impress thespian Monica Bellucci.
So, in relation to Hurricane Ian, there is no doubt that all three levels of government, companies, and homeowners will spend tens of billions of dollars on builders, carpenters, electricians, engineers, HVAC installers, and roofers. This is the seen. But where could those billions of dollars have gone without Ian? The answer to this question is the unseen.
That said, even taking economics out of the equation, does anyone really think a 70-year-old homeowner is financially better off now that her home was ripped from its foundation? If this is the position everyone is taking, then the apparent position from the standpoint of the Keynesian school is for the government to build a skyscraper, destroy it, and then rebuild the tower until it adds 0.1% to the GDP. Or, on a microeconomics level, individuals should construct two-story homes, purposely firebomb their residential properties, and spend money to create another house.
The Data
Economic theory is one thing, but what do the economic data tell us about post-hurricane economies?
(Photo by John Smith/VIEWpress)
In September 2020, the U.S. Government Accountability Office (GAO) analyzed the economic conditions and employment numbers of areas that had been impacted by hurricane activity. The researchers learned two things. The first is that economies in counties and metropolitan areas (80 in total) returned to normal after one year, making this entire stimulus business negligible. The second is that total workforce numbers were higher than pre-hurricane levels within a year and lower in other affected counties. Once again, the difference was indistinguishable.
The left-leaning Brookings Institution also warned that hurricanes threaten job growth in coastal counties because of physical damage to businesses, outages to essential services, small businesses eviscerated by lower revenues, and the many inevitable delays that come with both government bureaucracy and construction. Moreover, hurricanes can impact national job reports, as was the case in September 2017 when the economy lost 33,000 positions because of Hurricanes Harvey and Irma.
Fragile Times
The US economy is currently abnormal and fragile, and any one major event could exacerbate the post-pandemic recession. Hurricane Ian contributed to the recent upward trend in gasoline and diesel prices, while several agricultural commodity futures contracts are surging. Inflation was already imbibing Floridians’ wallets, so now, many cash-strapped homeowners will need to dip into their reserves to cover whatever their insurance policies do not. And yet, left-leaning experts will inform low- and middle-income households in West Florida that they are now better off because the economy will be stimulated due to their suffering. Is this iniquitous or misguided? To paraphrase the legendary author and cynic H.L. Mencken, a good economist is quite as unthinkable as an honest burglar.
