<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Caroline Baum</p> <p>Before the nonsense gets too far out of hand, let's review very briefly why natural disasters aren't a net plus for an economy.</p> <p>Don't laugh. Every time some region of the world suffers the ravages of nature, economists pump out <a href="http://www.philly.com/philly/opinion/inquirer/20121030_Disaster_has_economic_benefits__too.html">silly reports</a> outlining the benefits. They all read pretty much the same:</p> <p>"While said hurricane/tornado/tsunami/flood affected millions of people, disrupted the normal flow of activity and caused tens of billions of dollars of damage, the result will be a massive rebuilding effort that boosts economic growth. Decrepit infrastructure will finally get the upgrade it needs. Idled construction workers will be re-employed. Unused resources from the recession will get redeployed more quickly than they would have without the disaster."</p> <p>I have a standard response to such nonsense: If wealth destruction is such a good thing, why wait for natural disasters to occur when we could nuke and rebuild our cities on a regular basis?</p> <p>Yes, housing starts will increase, but the stock of homes won't be any larger. Businesses will replace the lost capital stock, but drawing on scarce resources to rebuild isn't an efficient use of them.</p> <p>Our old friend Frederic Bastiat explained it best -- the parable of the broken window --  in his 1850 <a href="http://bastiat.org/en/twisatwins.html">essay</a>, "That Which Is Seen and That Which Is Not Seen." He tells the story of a shopkeeper whose son breaks a window in his store. The shopkeeper has to pay the glazier six francs (no euros back then) to repair it. The glazier then has money in his pocket to spend. This is "that which is seen," or the Keynesian multiplier decades before John Maynard Keynes was even born.</p> <p>What if the shopkeeper didn't have to spend six francs to repair the broken window, Bastiat asks? He could have bought a pair of shoes, or spent it on something else. "Neither industry in general, nor the sum total of national labor, is affected, whether windows are broken or not," Bastiat writes. "Or, more briefly, 'destruction is not profit.' "</p> <p>Even a Ph.D. economist should be able to grasp that principle.</p> <p>(Caroline Baum is a Bloomberg View columnist. <a href="https://twitter.com/#!/cabaum1">Follow</a> her on Twitter.)</p> <p>Read more breaking commentary from Bloomberg View at <a href="http://www.bloomberg.com/view/the-ticker/">the Ticker</a>.</p> <p> </p> <p> </p> </body> </html>