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Nature's Creative Destruction
July 8, 2008 12:41 PM   Subscribe

Natural disasters are good for the economy. No, they aren't. Yes, they are. Well, maybe sometimes they are and sometimes they aren't. (pdf) It helps if somebody makes a movie or a television show about it. The Broken Window fallacy.
posted by anotherpanacea (17 comments total) 3 users marked this as a favorite

 
"It's an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?"

Judging by the weirdly stilted grammar of your neighbors, you live in a Stepford community (or the 1930s). The broken window is only the first strike, next the will come for your children. Then, on a fateful morning, you'll wake up with a sore spot on the back of your head and an overwhelming sense of pleasant complacency.
posted by doctor_negative at 12:58 PM on July 8, 2008


I submit that the Bush administration has upended the Broken Window Fallacy.

It is not seen that, since our president has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had the Mississippi river valley to replace, he might have invaded Iraq, or given the six francs to his friends in the energy industry.

I'd suggest that, under these unusual circumstances, any money the government has to spend repairing natural disaster damage is a net gain because it's money they can't spend on making our world a worse place for everyone.
posted by Naberius at 12:59 PM on July 8, 2008 [2 favorites]


Judging by the weirdly stilted grammar of your neighbors, you live in a Stepford community (or the 1930s).

Does 1850 suit?

posted by anotherpanacea at 1:04 PM on July 8, 2008


The broken window fallacy so cherished by libertarian types is itself a fallacy when applied to situations more complicated than the identical replacement of broken windows. Often times, particularly with old cities, "ripping it up and starting over again" may indeed lead to net financial gains down the road. Old cities have entrenched institutions and inefficient infrastructure; because it benefits few people in the short run to undertake massive structural overhauls, there's little chance such an overhaul ever happening on its. Catastrophic natural events can provide the "activation energy" to get out of the local maximum, so to speak, and lead to greater prosperity and better design in the medium and long run. London, Chicago, and San Francisco are some obvious examples.

If you apply broken window logic to all situations, then you might conclude that natural, periodic forest fires were wholly bad things, rather than just the opposite.
posted by decoherence at 1:51 PM on July 8, 2008 [1 favorite]


^ yeah. post-war Tokyo had the mother of all tabula rasas and wasn't quite able to significantly capitalize on the potentialities of the situation, such as it was.

Not to knock libertarians for no good reason, but one reason I tend to pigeonhole them as glibertarians is because they simply aren't willing to, or can't, appreciate the importance of path-dependence in economics and social justice.
posted by yort at 2:35 PM on July 8, 2008


To address the topic as if I were an econ prof, we often mistake income for wealth.

Wealth is simply the state of human weal, or well-being. It consists of the physical and the intellectual. The physical can be further refined into capital goods like roads, schoolrooms, desks, dams, etc. durable goods like cars and refrigerators, and consumable goods like gasoline, a gallon of milk, and a bag of Doritos.

The Primary economy concerns itself with extracting physical worldly resources like coal and crude oil, and growing wheat crops. The Secondary economy processes these raw goods into intermediate and final goods. The Tertiary economy distributes these goods and is home to most other elements of the Service Sector of the economy.

Since humans on the whole, in the first world at least, are more productive at current levels of consumption than the sum total of what we consume, wealth is accumulated and "trickles down" over time.

Wars like WW2 featured totally catastrophic, wholesale destruction of capital accumulation in many countries, plus also 5+ years of total misallocation of productive enterprise towards the support of warmaking rather than pursuing productive enterprises.

Bringing this analysis to the presentday, we will spend $800B of largely borrowed money on warmaking this next year. To put this in human terms, $800B is the sum total of 10 million people working fulltime at $80K per year. Thinking of the useful work 10 million people could be producing in some alternate, rational world is terribly soul-killing. Stuff like the LA -> SF highspeed railroad corridor is a rounding error on the $800B.

This also gets into the intellectual capital element of wealth. As anyone familiar with Civilization III's tech tree has seen, Humankind raised outside of modern civilization doesn't know shit.

The "professional" classes -- the doctors, lawyers, dentists, accountants, etc -- that have found employment among the upper middle class all exemplify leveraging scarcity of knowledge (and in some cases ability) in the tertiary economy.

But I think it's important to also look at the physical goods -- both capital goods and consumables -- that the professional classes actually consume in their practice. Everything above the cost of these goods represents economic rents that these professionals are extracting from the economy as a whole. (This element increases in importance when looking at healthcare reform etc)
posted by yort at 2:54 PM on July 8, 2008


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posted by yort at 2:56 PM on July 8, 2008


When did "economy" become the sole gauge to the health of a state? Somewhere along the line the corporatists who have raped our nation of wealth and natural resources have brainwashed Americans into thinking Wall Street is the true barometer of the national economy even when profits are made at the hands of Main Street jobs. Profits have been booming for the last decade in corporate America while wages have stagnated and jobs have been leaving the country. The increased profits wind up in the hands of the few.

I have no doubt that fishing villages devastated by the tsunami in Thailand transformed into high priced resorts will increase the local economy but at what cost? Families who for generations provided for themselves as fisherman now will work as low level employees at the resorts or selling trinkets to oil barons on holiday. In a generation or two their proud culture and tradition will all but be erased but some myopic libertarian journalist will write an article about what a financial success the village became post-tsunami; never taking into account that maybe the indigenous natives were happier when they were poorer.
posted by any major dude at 3:17 PM on July 8, 2008


I'm currently spending the Summer in New Orleans with a legal advice clinic for Katrina survivors. Here's how the story could have gone, in a more ideal universe:

The residents observed the massive damage to their town, already ravaged with crime and depressed by unemployment. But one after another, they came to the realization that, while this ill wind indeed brought nobody some good, the rebuilding of their town could equal the rebuilding of their economy, as well, and lead to greater prosperity for all. There were many broken windows, after all, requiring many glaziers, and those glaziers would earn the money to hire and train apprentices. So too with the roofers and the carpenters, and perhaps doubly so with the engineers who would redesign the levees, and the architects who would create more resilient structures. Though it would be unrealistic to imagine that every property could be saved, the now-cheap blighted land could be used to build new businesses, which would themselves need windows and roofs and plans. That money would then go to the cobblers and bakers, and at the end of the week, to the tavern keepers. Such a great undertaking would require a good amount of public funds to kick-start things, but would also necessitate the work of every able-bodied person available, simultaneously rebuilding the town, repopulating it with residents and work-force, and training that work-force for a better future for themselves and their children.

And if, in fact, that's the way it had gone down, there'd be no "Broken Windows" fallacy at all, as no one would really be thinking that the town hadn't lost the value of their homes and businesses, and it's not like people would go around creating more hurricanes anyway. But there could have been a result of a healthier economy and a better-trained work-force at the end of it all. Here's what really happened:

The townspeople looked around at their damaged homes, and decided that this was an ill wind that blew nobody some good. "But rebuild we must, and rebuild we shall," they said, as they were an almost defiantly stubborn people when it came to pride in their home. They yearned to pay the glazier for their broken windows, to ay the carpenters and the roofers, but there were no jobs to be found in their town, so many if not most were forced to find shelter and work in other towns, in other states. Slowly, the public funds to help kick-start the rebuilding process came in, but they were to be allocated through a venture not associated with the town, and acting for profit of its own. Still, eventually, most of the former townspeople, though not nearly all, were able to return to temporary shelters on their old property, and to receive some, but generally not all, of the money needed to rebuild their homes. The outside company in charge of the funding, you see, would make assessments on the former value of the home simply by driving by the wrecked lots, and deciding in the blink of an eye.

Still, many of the townspeople had to stay indefinitely in other towns, what with the injuries sustained in the storm, and the fact that the major hospitals in their home town were not being repaired. The town Council had a plan for that, however, which was to comission a new hospital to be built, and to make sure it got built no matter what. This hospital would be paid for entirely with public funds, though the profits would go to the groups running the hospital, which were not part of the town, and would also be built by ventures from far-away states, rather than by the townspeople themselves. It would not be completed until eight years after the disaster at the earliest.

There was also the trouble in rebuilding the homes. Most of the contractors able to do the job at the start were those from out of state, who hadn't suffered themselves in the disaster, and thus had the funds to rent property in the town. This property was very limited, which only drove rental prices higher, preventing the townspeople from moving back in. These contractors would generally accept the money for a job, with part due at the start and another part due at completion, with the townsperson purchasing all materials themselves. Depending on the contract, the contractor would then do shoddy work, little work, or no work at all, and then abscond with the money paid and no forwarding address, oftentimes taking the materials with them and resettling. The contractors would then take this money and buy cars and boats, which benefited those salesmen, to be sure, but they were generally not from the town either.

Meanwhile, the temporary housing was being forcibly taken away from the townspeople, who were blamed for not getting their homes rebuilt sooner. Also, the temporary housing was found to be laced with dangerous amounts of formaldehyde, but the townspeople had nowhere else to go, and the hospital beds were limited, despite the fact that the town's hospital had suffered very little damage, and could have been repaired within months of the disaster quite easily, by all accounts.


This is one of my many problems with economic libertarians: they will simplify and broaden everything until it fits their mold. Make the market the entire world. Make the timeline stretch out to infinity. Make everyone screwed by the process to blame for the entirety of their circumstances. And most importantly, ignore the fact that economy needs infrastructure to work at all.

Anyway, great post.
posted by Navelgazer at 3:26 PM on July 8, 2008 [4 favorites]


I'm not sure what I did to set off everyone's libertarian outrage filter, but rest assured that no one's celebrating natural disasters as engines of growth, just trying to figure out an analytic problem. Frankly, natural disasters are and ought to be, morally neutral. It's stupid to get pissed off at the earth for moving, that's just what it does. You can blame the state for inadequate responses to natural disasters, but part of that is trying to figure out what an optimal response and rebuilding plan would look like. In the case of Katrina, there's clearly something in the dynamic of rebuilding that separates New Orleans from Sichuan province. Don't you want to know what that is, if not out of intellectual curiosity, than out of responsibility to the victims?
posted by anotherpanacea at 3:29 PM on July 8, 2008


anotherpanacea: I absolutely do want to know what it is, and have a pretty good idea of what it is. I didn't imagine anybody was saying that natural disasters were anything other than damaging, or morally. Aside from some misguided survivalists, I don't think anybody believes we have any control over them either.

You didn't trigger my libertarian outrage here, my experience did. Katrina relief has been handled in about the most ass-backwards fashion imaginable (Give the relief money to ICF, a private out-of-state corporation, and trust that it'll lead to better results when they design the system for allocating it; fine victims for not building their homes fast enough, when they can't get the relief money, are being screwed by contractors, have to find work out-of-state themselves, and are using every last penny on rebuilding to begin with, so that those properties may then be expropriated and sold back to the people with money, because the property values are more important than the people are, etc.) and it's all being justified with libertarian philosophies against say, taxing and spending, which is clearly needed here, or needed more than it is, in favor of the private sector being able to handle things better than the public sector, despite all of the present local evidence to the contrary, and above all else, victim-blaming.

I'm a civil libertarian, and I believe that capitalism can manage itself to a degree. However, first, economies need resources and the infrastructure to use them, so that products and services may be marketed, and basic human needs be met. From now on, my response to every libertarian argument will be to ask them to test their theories on an impoverished Asian, South American, or African nation, and see how they pan out. Secondly, despite libertarian (and anarchist) idealism, once official power is taken away, it's not like power ceases to exist - the vacuum is simply filled by something else, and there's nothing to suggest that a corporation accountable to its share-holders will be more beneficial to pubic interests than a public system beholden to the voters, even if that public system is flawed.

I wasn't kidding when I said this was a great post, nor was I kidding when I favorited it. There was a question presented as to whether natural disasters can fuel an economy. I stand by my first comment, which was essentially saying that they can, but that it takes a lot of work from everybody involved to make that happen, and that natural disasters are, at best, an impetus for structural and economic development. Libertarian philosophies, in some cases, would view the need for building as a magic wand, but pure, unrestrained capitalism cannot work on a local scale in a global economy. Katrina may very well have helped the economies of Texas, Oklahoma, Illinois, and New York, as well as other places, but the broken window, forever lost in the transaction, would seem to be New Orleans itself.
posted by Navelgazer at 3:59 PM on July 8, 2008 [2 favorites]


note: morally anything other than neutral.
posted by Navelgazer at 4:00 PM on July 8, 2008


Don't you want to know what that is

I think the Marxists are on to something with their Alienation of Labor thing:

"The first and most striking feature of economic alienation is the separation of people from free access to the means of production and means of subsistence. . . Until after the American Civil War it was not impossible for masses of people to find some unpreempted spot of land and to establish themselves on that acreage as free farmers, as homesteaders.

"That historical factor is the starting point for any theory of alienation because the institution of wage labour in which people are forced to sell their labour power to another person, to their employer, can come into existence on a large scale only when and where free access to the means of production and subsistence is denied to an important part of society. Thus the first precondition for the alienation of labour occurs when labour becomes separated from the basic means of production and subsistence.
. . .
"The second stage in the alienation of labour came about when part of society was driven off the land, no longer had access to the means of production and means of subsistence, and, in order to survive, was forced to sell its labour power on the market. That is the main characteristic of alienated labour. In the economic field it is the institution of wage labour, the economic obligation of people who cannot otherwise survive to sell the only commodity they possess, their labour power, on the labour market.
. . .
"However, once the institution of wage labour is prevalent, these possibilities become nullified. Work is no longer a means of self-expression for anybody who sells his labour time. Work is just a means to attain a goal. And that goal is to get money, some income to be able to buy the consumer goods necessary to satisfy your needs.

In this way a basic aspect of human nature, the capacity to perform creative work, becomes thwarted and distorted. Work becomes something which is not creative and productive for human beings but something which is harmful and destructive."
posted by yort at 4:06 PM on July 8, 2008 [1 favorite]


I think the Marxists are on to something with their Alienation of Labor thing

Without disagreeing with you, I do find that I don't see the connection to disaster economics.

Katrina relief has been handled in about the most ass-backwards fashion imaginable

This is what I come back to: New Orleans should be booming and isn't. Something went wrong, and it's either because the city itself is economically impractical given climate conditions, or because we've failed to 'save' enough for disaster relief to take advantage of the 'opportunity' to replace lost capital stocks with new. In other words, we're either looking at an uncertainty problem (unwillingness to reinvest because future disasters seem likely) or a savings rate problem, which is to say a failure of social 'insurance.'

As you say, the economic boom might have been exported, but disaster booms can't really be exported, just the labor. I've been somewhat persuaded that we're actually looking at an uncertainty problem rather than a savings rate problem, and that's primarily because inefficiencies like the corruption you mentioned are getting exported rather than reinvested in New Orleans. I'm quite sure that Sichuan has its fair share of local graft and incompetence, but it's not hampering the growth. Perhaps a better comparison is Greensburg, Kansas: they're rebuilding with all green LEEDS certified materials and techniques, which means that they're really going to improve capital stocks in the way that Dacy and Kunreuther imagined. Aside from the irony of making Greensburg 'green,' I don't see why that couldn't have happened in NOLA. Yet it didn't, and that's a mystery and not at all morally neutral.

I'm no fan of the current administration's emergency preparedness, though, so I'm willing to consider arguments to the contrary.
posted by anotherpanacea at 4:35 PM on July 8, 2008


Natural disasters are great for GDP.
So is getting cancer and $4+ gasoline.
Just wait until you have to bring a wheelbarrow of money to the grocery store to buy a loaf of bread.

Whoo-wee! That GDP will look AWESOME!
posted by Balisong at 5:26 PM on July 8, 2008


In other words, we're either looking at an uncertainty problem (unwillingness to reinvest because future disasters seem likely) or a savings rate problem, which is to say a failure of social 'insurance.'

New Orleans existed for nearly three centuries before Bush. NO was decimated during the Bush years. I doubt either "reinvestment uncertainty" or "social insurance" failed New Orleans, so much as that executive cronyism, ineptitude and racism replaced leadership. So here we are.
posted by Blazecock Pileon at 11:30 PM on July 8, 2008


Blazecock: cronyism, ineptitude, and racism are pretty much exactly "social insurance" failures. But for all that you might want to blame Bush, can't you also admit that nothing on this scale ever happened to New Orleans before? We're talking about climate change effects massively reworking the landscape, not some two-bit Texas governor's idiot policies. Hell, the US has historically been RUN on cronyism, ineptitude, and racism, and Bush is exceptional in this regard for our times, but not for NOLA's 300-year run.
posted by anotherpanacea at 3:22 PM on July 9, 2008


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